Move you
Make
Fraud investigation experts
and corporate leaders discuss
best practices to detect and
prevent fraud in India Inc

volume

02

Issue

12

A 9.9 Media Publication

CFO
December | 2011

Inside

14 COVer story

i THINK
12 PARTHO S DATTA
The former group CFO of Murugappa Group talks about the
fear of a liquidity crunch and the challenges that CFOs face

PREVENTING FINANCIAL FRAUD
20 PREVENTION BEGINS AT THE TOP
Detecting and preventing financial reporting fraud is no
doubt a management concern, but stakeholders such as the
Board and audit committees should be equally involved.

INSIGHT

EVERY MOVE
YOU MAKE...

45 THE BUSINESS OF SUSTAINABILITY
More companies are managing sustainability to improve
processes and add value to their organisations, finds a
McKinsey Global Survey.

Experts on fraud investigation and detection and
those who have dealt with financial reporting
fraud talk about best practices that India Inc
should adopt to prevent and detect fraud

CFO profile

CASE STUDY

Sunil Kakar, Group CFO of
IDFC talks about how he
manages to stay focussed and
driven and some of the key
lessons he has picked up in
his 25-year career.

Rajesh Pasari, CFO, NetAmbit, recalls the challenge of setting up the commercial function at his previous job in Spencer’s Retail and growing the retail chain by 400 per cent.

from player to coach

32

42 lEADING A RETAIL REVOLUTION

Cfo lounge
54 ON WHEELS | BMW 530d
58 TRAVEL | SANTINIKETAN

leader’s world
52 DOING THE DEAL
Moving beyond negotiating at the
table is important if CFOs have to
be better leaders, says David Lim

"Leading-edge content and objective research for the
competitive advantage I need to meet the demands
of a multinational computer technology corporation.â&#x20AC;?
Taylor Hawes
Cfo intellectual Property & Licensing
miCroSofT CorPoraTion

membership
a newly-established category of fei membership that empowers talented,
motivated financial professionals with ongoing opportunities for personal and
professional growth as their careers advance
Choose FEI to support your advancing career as a financial professional.

Interested in learning more
about the Financial Executives
International India Chapter?
Contact Tom Thompson at
tthompson@financialexecutives.org

More than 15,000 Members | 85 Chapters Worldwide | 79 Year History
FINANCIALEXECUTIVES.ORG | MEMBER SERVICES 877.359.1070

from the

editor

dhiman chattopadhyay
dhiman.c@9dot9.in

Every Move
you Make...

In a country where bribery is common
practice and evading taxes successfully is
a matter of pride for some, one cannot wish away corruption and
fraud in the corporate sector. India Inc. may fare better on some
‘corruption surveys’ compared to politicians and bureaucrats, but a
lot more needs to be done. It is essential therefore that we don’t just
put in place systems and processes to prevent and detect fraud in our
own organisations but also move towards creating central agencies
and push for regulations to ensure organisations that follow a path of
honesty and transparency, are rewarded.
For our cover package this time (Every Move you Make...Page 14)
we spoke to experts on fraud investigation and detection services,
chartered accountants associations as also to CFOs who have dealt
with fraud in their organisations. The intention was not to just find
out what ails the system, but to look ahead and discuss best practices
that CFOs can bring to their organisations, to prevent a Satyam-like
scam from happening again and the steps that the government can
take. What emerged was a two-fold conclusion. At the individual level,
CEOs and CFOs need to ensure that the right values are instilled in the
organisation, so that employees see the management as transparent
and honest with zero tolerance towards fraud. Simultaneously there
is a need for India Inc to join hands with the government and set up
one agency to rate companies on the basis of their transparency and
financial reporting standards and another, to train and retrain senior
corporate leaders in fraud detection and prevention before deputing
them as independent members who ask pertinent questions related to
financial reporting standards.
Not everything however is grim and serious in this issue. After all
it is the season to be merry! So there is plenty to cheer about as well.
Read our Lounge section to plan your holiday, check out a new gadget
or, if you are feeling flush, to buy that new BMW! Also launching from
this issue is the M&E page where we tell you about India’s newest and
coolest Meeting & Eating (M&E) places.
Here’s wishing you a very happy 2012.

CFO India’s 2nd Anniversary special has lived up to the
benchmark set by the first anniversary issue. You have published the experiences, knowledge and values picked up by
some of India’s senior most CFOs, all in one edition. It is
indeed another collector’s edition from the stable of CFO
India. Many thanks for bringing out this exclusive edition.
My congratulations to the entire team.
—Shantharam Nayak TR, CFO, All Green Energy, Bangalore

12.11

That
Good Feeling

I

ever, brings me to a big one we faced when deciding
t feels great to be a year older. It really does, when
the order in which the articles were to appear.
you are as young as we are. It also has something
The easiest way was to carry them in alphabetical
to do with the go-getter attitude of the commuorder, but we wanted to put so many of the writers
nity that we represent. So, we chose to celebrate
up front, and unfortunately, the names of all CFOs
CFO India’s Second Anniversary (it may seem
do not begin with ‘A’. So we thought of bunching
like we have been around forever, but we are just
them according to the size of their companies and,
two years old), by asking 36 of the country’s leading
in some cases, according to the sectors they are in.
Chief Financial Officers to become journalists for a
Then we had our eureka moment: why not categorise
few hours and write about two memorable moments
them into four categories of athletes? After all, these
in their career — a big challenge they overcame and
eminent people and their companies all represent
a big win — successes that made them feel ‘2 good’.
something remarkable. For some it is about stamina
The memories and the experiences that the CFOs
or about technique while for others it is speed and
have written about are as rich and varied as the list
strategy, much like athletes who compete across
of contributors. From IPOs that almost failed, tricky
different distances. So does ‘size
mergers and computerising bank
matter’ or do we think ‘the best
branches to turning around loss
things come in small packages’?
making units, creating blueprints
We will keep you guessing on that
for risk management and in one
one, but what we are sure of is that
case at least, becoming a CFO
the following 70-odd pages will
after spending half a lifetime in
keep you interested, thanks to the
programming and HR — the stofascinating experiences shared by
ries you will read in the following
some of the most respected finanpages are sure to keep you glued to
cial leaders in India. Go ahead and
this edition.
Talking about challenges how—Dhiman Chattopadhyay turn the page!

8

CFO INDIA

NOVEMBER 2011

Your voice can make a change: Share your viewpoint on what’s
happening in the community and your feedback on the magazine at
editor@cfo-india.in

GREAT CARICATURES

BRILLIANT ILLUSTRATIONS

Thank you very much for the comprehensive articles
published in the second anniversary issue of CFO
India. Each one of the experiences were great to read.
The caricatures of course are absolutely superb.
— Bhaswar Mukherjee, Director, Finance, HPCL, Mumbai

Thank you very much for coming out with an excellent
2nd anniversary issue. Apart from all the articles, I really
liked the caricatures. Please do convey my sincere appreciation to the artist. He made me look 10 years younger!
— Sunil Kakar, Group CFO, IDFC, Mumbai

CONGRATULATIONS!

KUDOS!
I would like to take this opportunity to congratulate
team 9.9 Media for putting together a comprehensive issue chronicling the experiences and challenges
faced by eminent Indian CFOs. It is interesting to
know about the strategies put in place by our finance
leaders, how they have managed to resolve tricky
business situations and emerge as winners.
— Gulshan Dua, Country Controller and Company
Secretary, Freescale Semiconductor India , Noida

Accept my accolades for the 2nd Anniversary issue
of CFO India. It was very interesting and worthy of a
collector’s issue. I found one error in page 21 though
where you mention that “US GAAP is not only about
accounting standards published by IASB...” I think it
should be FASB in place of IASB.
—Pankaj Mundra, AGM, Finance, Hindustan Zinc Limited, Vedanta Plc, Mumbai

TIPS FOR CFO INDIA
FANTASTIC ISSUE
Congratulations on the fantastic anniversary issue.
The perspectives you have collected from multiple
CFOs is clearly invaluable. My own contribution has
also received good feedback from many; thank you
for the opportunity to contribute to this special issue.
— Sathya Kalyanasundaram, Director Finance &
Operations, Texas Instruments, Bangalore

4

CFO india

December 2011

NOVEMBER 2011

CFO India is on the whole a very readable magazine.
However, I find it a little too personality driven. CFOs
do grapple with a number of regulatory changes in
various areas. The magazine can become even more
useful for us if major developments in areas like tax,
corporate law, securities law, accounting and M&A are
covered regularly in your magazine.
— Jaimin Bhatt, CFO, Kotak Mahindra Bank, Mumbai

CFO INDIA

9

12.11
BUZZ

photos.com

CA shortage hits India

8

CFO india

December 2011

There is a shortage of nearly 2 lakh
chartered accountants in the country
today. And with foreign investments
expected in several sectors, apart
from the Direct Taxes code coming
into effect soon, the demand for CAs
will only go up, Mr G Ramaswamy,
President, Institute of Chartered
Accountants of India, told The Hindu.
“Big companies such as Infosys, Wipro
and ICICI Bank require CAs in large
numbers. And with taxes such as the
DTC and GST as well as FDI to come
into play, CAs have an important
role to play in future,” he said on the
sidelines of the National Convention
for CA students in Chennai.
In 2010, 1.83 lakh CA students
passed out, though only around 85,000
are in practice. To improve the performance and training for CAs and bridge
the need gap, the ICAI is engaged in
various initiatives.
‘Project Parivartan’ seeks to bring in
a paperless education system where
CA course materials, notes, question
papers and registration forms can be
accessed online. “Already elements of
this are in place. The project will be
completed by June 2012,” he said.
The ICAI is bringing out e-learning
courses on various subjects too. It is
also organising faculty training programmes and has brought out CDs on
preparing for CA exams.

Have interest rates on loans reached a
peak and now see a reduction?
Vote now at www.cfoinstitute.com/poll

BOOM TOWN

CAREER

New App to
help get jobs
Facebook is probably not the first
place that comes to mind when contemplating new career opportunities. But Monster.
com, the career search website, hopes to
change that with BeKnown, a professional
networking app that allows users to build
their professional identities within Facebook,
reports Reuters. “People spend so much of
their time on Facebook and at the same time
companies are trying to find creative and productive tools to connect with potential talent,”
said Tom Chevalier, Global Product Manager
for Monster Worldwide. With BeKnown jobs
are displayed based on a user’s work experience and network connections.
BeKnown has been configured to work with
iPhone and Android.

The national capital has been named as the country’s most
competitive city for the second year in a row in a survey that analysed different cities on factors like their investment climate and
governance matters. Delhi
pipped the financial hub
Mumbai and IT hotspot
Bengaluru to grab the top
slot in the annual survey
conducted by the Institute
for Competitiveness (IFC).
Releasing its City Competitiveness Index 2011,
the IFC said in a statement
that the report was an indicator of how the corporate world selects the cities for investing and
also how governance is important in assessing the level of competitiveness across these cities.
In the list of 50 cities, Delhi is followed by Mumbai, Bengaluru,
Pune, Chennai, Gurgaon, Kolkata, Hyderabad, Ahmedabad and Jaipur in the top 10 positions.
“The growth and progress under some parametres is remarkable and if Delhi continues to grow at this pace then it may become
unbeatable in some time. For instance, its physical infrastructure,
its demographicsand some business dimensions are its strong
areas,” the report said.
“In addition its proximity to cities such as Gurgaon and Noida add
an advantage to its basket,” it added. The report said that Bengaluru
and Pune have moved up from their fourth and eighth ranks
respectively last year, while Chennai has dropped three positions to
the fifth place.
December 2011

CFO india

9

photos.com

Delhi is India’s most
‘competitive’ city

O-ZONE
cfobook

JARGON
DECODED

THE
PHRASE:
MEANDERTHAL

Sandeep Batra
Wall

Info

Boxes

+

What’s on your mind?
Attach

Share
Sandeep Batra enjoys a special bond with Calcutta (Kolkata), the
city of his childhood. He still loves calling it ‘Calcutta’.
December 22 at 10.30 pm · Comment · Like

The meaning:
This is a person who
has great difficulty
expressing himself
succinctly, often giving long, unfocussed
presentations.
The Usage
Next time your
jargon-loving
colleague says, “I
want to gouge my
eyes out every time
the office meanderthal pulls up a
PowerPoint,” it is
not a pre-historic
creature he is
referring to. Just a
difficult-to-understand colleague.
And no, not you!

REAL ESTATE

Sale of residential properties has dropped by 18 to 28 per
cent in major metros, hit by dampened demand as a combination of
higher property prices, rising home loan rates and job cuts take a toll.
Data released by real estate research firm Liases Foras for
Delhi, Mumbai and Bengaluru, indicates this trend. Bengaluru
for instance, considered one of India’s fastest growing and most
crowded metros, shows a 21 per cent drop in residential area sold
in April-September 2011 compared to last year. In Delhi sales have
dropped by 18.7 per cent YOY for the April-September period
according to the Liases Foras data, while sales in Mumbai slowed
the most, falling almost a third.
10

CFO india

December 2011

Anil t

Home sales drop
across cities

O-ZONE

snippets
POLICY

Lok Sabha clears LIC Bill 2009
The Lok Sabha has finally passed
the Life Insurance Corporation
(Amendment) Bill 2009 on December
12, 2011. The bill seeks to raise the
capital base of the state-owned insurer
to Rs 100 crore from 5 crore, bringing
it on par with private insurers, both in
life and non-life segments, which are
required to have a minimum capital
base of 100 crore as per IRDA norms.
Minister of State for Finance, Namo
Narain Meena said the changes will not
affect policy holders. The bill was introduced in the Lok Sabha quite a few years

back and referred to the Standing Committee on Finance, which had strongly
opposed the provision in the bill that
empowered the government to limit the
extent of sovereign guarantee.
The government, Meena clarified,
will continue to provide sovereign
guarantee to the policies sold by
LIC. The bill also seeks to allow LIC
to allocate 90 per cent or more such
surplus — excess of assets over
liabilities — for life insurance policyholders and the rest to a separate
account maintained by LIC.

FASHION

Resort wear: The new
money spinner?
CFOs, specially in the retail
sector, take note: there is money
to be made by investing in a
resort wear division in your
firm. Some of India’s leading
fashion designers such as
Manish Malhotra, Narendra
Kumar Ahmed, Anupamaa and
Babita Malkani who had come to
showcase their collections at the
first ever India Resort Fashion
Week (IRFW) were unanimous in
their view that for a majority of Indians, most of whom are overweight, the most
appropriate set of clothes was resort wear — loose fitting casual clothes. As if on
cue buyers from the Middle East and Europe arrived for the inaugural IRFW that
was held in Goa recently. “Even if you look at what people wear almost every time
they travel, it is resort wear. With billions travelling on holidays each year and
a substantial number of them willing to be seen in exclusive wear during their
holidays, the market for resort wear will only go up,” said Khaled Mekawi, one of
the buyers who had come from Lebanon.
So have the people behind the inaugural IRFW, (The Imtiaz Khatri Group along
with Id8 Media, Provogue and others) pulled off a coup of sorts? Time will tell.

Ex-IAS joins
Edelweiss board

Edelweiss Financial Services has
inducted Sunil Mitra, former
finance secretary, as independent
director on its board. “The
company will benefit from his
sage counsel,” EFS chairman and
CEO Rashesh Shah said. Mitra
retired as revenue and finance
secretary in June 2011.

RBNL gets new CMO
Reliance Broadcast Network
Ltd (RBNL) has appointed
Vivek Malhotra as Head of
Marketing for its radio brand
92.7 BIG FM. In his new role,
Malhotra will be responsible for
developing the overall brand and
communication strategy for the
business and implementation
rollout across the stations. Prior
to joining RBNL, Malhotra was
with Bloomberg UTV, where
he was Senior Vice President –
Marketing, PR and Research.

Cantabil’s new CFO

Mr Rajesh Rohilla has been
appointed the CFO of Cantabil
Retail India Limited, a retail,
garment and textile company,
with effect from December
14, 2011.
Cantabil offers a wide
range of unique designer
and comfortable clothing. At
present, Cantabil’s stores are
spread across the country and
many overseas markets.
The shares of Cantabil Retail
India Limited were trading at
Rs 15.65, increased by Rs 0.60
or 3.99 per cent at 1,253, on
December 14.

December 2011

CFO india

11

cfo

i think

Facts & Trivia
First Job: Dunlop India
PREVIOUS JOB: CFO, Indian
Aluminium Company
In the News: Winner of several
CFO awards and a member of
the CFO100 Hall of Fame

Warren Buffet once famously
commented “It is only when the tide
goes out that you learn who’s been
swimming naked.” We are in one such
tide, running out of time. Several factors have come together to create this
stress in the market place — projects
stuck for clearances, counter-parties
in legal or business troubles, drop in
demand growth, cost of money in India,
global tensions like the Euro zone crisis
and a general sense of caution. In some
companies, the finance function has
been scarred by currency losses.
This sets up three problems for the
CFO. The first is to keep meeting current commitments on operations, debt
servicing and capital investment programmes. The second is to decide on
the choice of debt funding. The third is
how to handle opportunities that come
up in weak markets — be it in market
share or buying out competition or
suppliers. Unfortunately, issuing new
equity, the ultimate liquidity instrument, is not easy right now.
12

CFO india

December 2011

PARTHO
SARATHY DATTA
The former Group Finance Director at Murugappa
Group and a member of the CFO India Hall of Fame,
Partho S Datta talks about the fear of liquidity crunch
that has engulfed India Inc, three key challenges it
throws up for CFOs and possible solutions
The winners will of course be companies with mostly completed projects,
flexible product lines and some financial head room. After all, it is also a
question of being better off than one’s
competitors. CFOs who have preserved

“A company
that shows
lenders...and
shareholders
that it is
well-governed
and has
high ethical
standards,
will always be
sought after”

head room will have earned their keep.
They would be the ones who would be
able to protect the strategic options and
flexibility every company seeks.

What can the CFO do
then about some of the
challenges?
The first job will be to trim current
operations and squeeze out time from
the working capital cycle. The true
benefit of an ERP system should kick
in here, as would the concept of simplification. Often complicated structures
are raised to maximise various gains,
including financing, outsourcing,
long term contracts, corporate structures, forex hedges and fiscal benefits.
Unthinkable as it might be, the CFO
should work with the top management
team to know the cost of abandoning or
curtailing projects, and selling assets.
Enough has been said about risk
management. Every company’s annual
report carries substantial updates on

Satyam

that. A crisis gives us an opportunity
to do a back-check â&#x20AC;&#x201D; did we capture
the key risks and put the right weights
on them? Is the mechanism for early
sighting of risk in place? Events can be
sudden, or their coming together can
be overwhelming. Nevertheless, a lot
can be achieved by anticipating and getting to understand the interconnected-

ness of major risks. Many commonly
used risk measures may prove inadequate because they are based upon past
data and relationships. Useful as daily
management tools, they can lull one
into an unjustified sense of security.
The third is to outpace the market in
setting up and communicating governance standards. Surprises are always

unwelcome. Much more so in difficult
times. A company that shows its lenders, partners and shareholders, that it
is well-governed and has high ethical
standards, will always be sought after.
After all, lenders are also hunting for
good quality assets, and willing to give
time to good borrowers to set their
house in order.
December 2011

CFO india

13

Every
move you

Make...
Fraud investigation experts and CFOs who
have dealt with fraud in their organisations
discuss best practices and proactive steps to
detect and prevent fraud in India Inc
Dhiman Chattopadhyay
Anil T

14

CFO india

December 2011

cover story

Preventing Financial Fraud

O

ne thing is for certain. Corporate India is now far more proactive in
the way it looks at financial reporting fraud thanks to the wake up
call following the Satyam scam. More companies are now looking
at strengthening their internal audit teams while audit committees
and boards are asking more uncomfortable questions. Whistleblower policies too are being put in place. Yet, obviously a lot more needs to be
done to minimise the chances of a Satyam-like scandal happening again. The good
news is that there is no dearth of global best practices to take inspiration from, nor
is there a dearth of ideas from experts.

A POSITIVE CHANGE
“Earlier my proactive work was just 10 to 15 per cent of the total work we handled
in terms of fraud investigation, detection and prevention. Almost 90 per cent of it
was reactive work, once the fraud had already taken place. In the last six months
the proactive work has gone up radically to between 35 and 40 per cent. This is a
clear indication that India Inc has woken up to the need to prevent fraud instead
of acting only after the damage has been done,” says Arpinder Singh, Partner and
India Leader of Ernst & Young’s Fraud Investigation and Dispute Services (FIDS).
Mr Singh says even on the reactive side, as opposed to earlier instances when
many companies would try to deal with the situation themselves and hush up matters, vigilant audit committees now demand proper external investigations. “It is no
longer couched in secrecy,” he says, adding, “Not too long back most annual reports
didn’t even mention fraud prevention measures in their annual report.” Mr Singh
however, sounds a warning note. “The worrying thing is that the nature of fraud
is changing. People are imaging documents on their BlackBerry and iPhones,”
he says. Thankfully as more Indian organisations acquire companies abroad or
expand their operations into other continents, corporate governance is becoming
tighter as well. “The zero tolerance to fraud that most top British or American firms
now have, is rubbing off on us. Give it another couple of years and things will get
even better,” he says. But hasn’t the magnitude of fraud also grown over the years
in India? “That is primarily because the size of the economy has grown. Also a
lot more fraudulent practices are coming to light because they are being exposed
unlike before,” he counters.

December 2011

CFO india

15

Preventing Financial Fraud
THE CHALLENGES
Yet, detecting and preventing financial
reporting fraud is one of India Inc’s
biggest worries now. One man who has
worked closely with an organisation
affected by fraud is S Durgashankar,
the former CFO at Mahindra-Satyam
under whose leadership M-Sat turned
the corner after Mahindra & Mahindra
acquired the scam-hit IT giant.
“Fraud has to be looked at from two
aspects: fraud encouraged and committed from the top; and employee fraud.
As far as top level or management
fraud is concerned, we should try and
set benchmarks that are higher than
global standards,” says Mr Durgashankar. Why? He reasons that the culture
of black money, bribery and tax evasion
is fairly high in India compared to most
developed nations and to counter this,
India Inc needs to set higher standards
of ethics and honesty.
Currently, EVP M&A at M&M, Mr
Durashankar believes the amount of
time audit committees and boards
spend looking up financial records
of an organisation, is not adequate to
gauge and prevent fraud. “The board as
well as the audit committees meet once
every quarter, for about three hours.
Honestly, 12 hours a year is just not
enough to understand if a company is
doing every thing right,” he says.
On the other hand, he also feels it is
unfair to expect the board to handle the
entire responsibility. “Why should board
members be the only ones to check for
fraud? Internal auditors, external auditors
and other stakeholders should shoulder
the responsibility as well,” he adds.
Not everyone however, is happy with
the way India Inc has moved since the
Satyam days. Sandeep Baldava, Partner
E&Y says, “Recent surveys conducted by
various organisations indicate that the
level of fraud continues to rise in India.
The impact (financial or reputational)
has also increased substantially to the
extent that in some cases it may threaten the existence of the organisation or
the relevant business division. This is
despite the fact that there was suppos16

edly an increased focus on fraud risk
management after Satyam,” he says.
Mr Baldava believes the biggest challenge before India Inc now is to show
sincere willingness to be proactive.
“Very few companies in India have put
in place a formal fraud risk management framework to address the risk
of fraud. Most companies take some
measures for prevention or detection
of fraud. However, audit committees
and directors sometimes are not able
to assess whether those measures are
adequate vis-à-vis the fraud risk perception for that company,” he says.
Mr Gulzari Babber, Global Deputy
President of CIMA talks of these challenges from a global perspective. “During 2011, CIMA has worked to raise
awareness of the UK Bribery Act and
the fact that it has implications for business around the world. In particular,
the Act includes a corporate offence of
failing to prevent bribery. This strengthens the importance of strong ethical
cultures and practices within organisations that wish to engage globally. The
highest growth markets, such as the
BRIC nations, are also at the highest
risk from corruption as illustrated in
Transparency International’s Corruption Perception Index,” he says.

POSSIBLE SOLUTIONS

“CFOs should
reflect on
the risk they
run if their
organisations
don’t
implement
strict fraud
detection and
prevention
mechanisms”
—Gulzari Babber,
Dy President, CIMA

So what needs to be done? Mr Durgashankar’s prescription is simple:
create a national body that rates every
listed organisation in India based on
how transparent they are and how efficiently and credibly they have undertaken internal and external audit.
“The least it will do is create pressure
on the management and force them
to clean up their act. Companies will
realise that the ratings will determine
whether they get PE funding of even
foreign investments,” he says.
Another best practice he says, would
be to follow a policy of rotation in the
finance department. “Unless people,
are regularly rotated to other areas and
new people brought in, the risk of fraud

Preventing Financial Fraud
being perpetuated and left undiscovered
till its too late will remain,” he says.
“The government should set up a
national body that is an authority on
corporate fraud. The members of this
committee should come up with a blueprint of 10-12 things that lead to fraud
and then suggest solutions to these or
recommend systems to be put in place
to tackle these,” he adds.
His final suggestion: to create an
institute that trains senior corporate
leaders who can then be deputed as
independent directors to ask the right
questions about possible financial
reporting irregularities.
Mr Baldava argues along similar lines.
“Managements should establish a comprehensive Fraud Risk Management
(FRM) Framework to tackle the risk of
fraud and to minimise the resultant
financial and reputational loss to their
organisation,” he says. To achieve this,
he has a three-step framework in mind.
The first, he says is to create an antifraud environment. “Setting the tone at
the top is the most crucial step in creating this environment. It can be achieved
by establishing an overall culture of
honesty, integrity and ethical conduct
across the organisation. This should be
a continuous process,” he says.
Organisations also have to establish
procedures for prevention and early
detection of fraud. Mr Baldava feels
a company should establish specific
and visible procedures that are aimed
at prevention and/or early detection
of fraud. In addition to internal audit
mechanisms, these would include
mechanisms such as fraud risk
assessment, background checks,
behaviour pattern analysis, surprise
reviews and other processes.
He also suggests that the fraud risk
management committee should independently oversee the investigation into
internal and external frauds. Mr Singh,
who, in his capacity as the India Leader
for E&Y’s FIDS cell has probably seen
and handled more corporate fraud
cases than most others, sees a lot of
positives emerging post Satyam.

“Setting the
tone at the
top...can be
achieved by
establishing
an overall
culture of...
ethical conduct
across the
organisation”
—Sandeep Baldava,

“Internal
and external
auditors as
well as other
stakeholders
should
shoulder some
responsibility
as well”
—S Durgashankar,

Partner, E&Y

EVP M&A, Mahindra & Mahindra CDP

“The company hotline system where
whistleblowers are encouraged to call
and register complaints, have come as
a boon. Today 85 to 90 per cent of my
investigations begin because someone
has blown the whistle on a large scale
fraud in their organisation,” he says.
He also suggests that CFOs should
conduct fraud risk assessment in their
organisations at regular intervals. “Do
not do it later and wait for something to
happen. Do a fraud risk assessment as
early as possible. CFOs in fact should
demand this,” he says. The other advice
he has for CFOs: “Practice what you
preach. Punish the guilty, however big
he or she maybe.”
The good news of course is that many
of India’s listed and well-respected
organisations who value their market
reputation are now employing global
best practices to improve transparency
in their organisation.
“Many large organisations put in
place various analytic procedures

to monitor and identify abnormal
transactions or transactions with
red flags. Some organisations are
enhancing these procedures to include
employee behaviour monitoring or
abnormal activity monitoring. But they
also need to adopt a careful approach
when implementing these procedures
to ensure that personal privacy of
an employee is not intruded in the
process,” Mr Baldava says.
The message for India Inc. particularly its CEOs and CFOs are loud and
clear. As Mr Babber of CIMA concludes, “CFOs should reflect on the
risk they run if their organisations do
not implement strict fraud detection
and prevention mechanisms. After
all, a multimillion dollar fine and the
additional costs of reputational damage together with employee and client
disengagement seems to be the wrong
trigger for change. Improving business
practice and strengthening performance must be a better option.”
December 2011

CFO india

17

Fighting

Fraud
corporate

with internal audit
Despite the wake up call after
the Satyam scam, many Indian
organisations are yet to realise
the importance and true potential
of internal audit
Mritunjay Kapur

A

ny organisation, even by
conservative estimates,
can lose six to eight per
cent of its revenues on
an average due to the
absence of internal audit, an effective
control environment and strong fraud
prevention mechanisms. After the
Satyam scam it was felt that India Inc
had realised the importance of IA. Yet,
though talks of corporate governance
standards have increased, the practice
of internal audit being followed as a
regular task is still not prevalent.
Even today, many companies have a
traditional mindset that internal audit
is an additional and unnecessary expenditure. Moreover the methodology of
corporate governance standards, risk
management and oversight practices in

18

CFO india

December 2011

India need to improve and that is only
going to happen when the tone at the
top improves and the promoters and
the Board of Directors view Internal
Audit as an tool to better manage their
organisation as opposed to IA being
just a compliance requirement.
Internal audit can help organisations
in the following ways to improve
efficiency:
• It helps understand and verify how
activities and processes are actually
operating, rather than just thinking and
knowing how they are working.
• It looks into known problem areas
and develops a fact-based action plan to
make corrections and improvements.
• It helps verify if critical areas that
must operate flawlessly are in fact
doing so.

• Internal audit can help to strengthen
the internal controls within an organisation and thereby help improve efficiency. It can help improve accounting documentations and policies, achieve proper
segregation of duties and improve control over the IT systems.
• It is also the biggest deterrent
against fraud.
Internal audit offers various advantages to both the CFO and the organisation. For fast growing, SME and in general most companies, having an internal
audit function can make it easier for
CFOs to raise funds for the organisation.
Most investors prefer investing in
businesses which have an independent
internal audit function because it gives
reassurance to the investors on how their
money is being spent and on the governance and work ethos of an organisation.
The benefits of internal audit outweigh
the costs if it is considered as a tool of
managing and improving a business.
Internal Audit can help ensure that
the strategy, process and policies for
achieving organisational strategy are
being followed in the organisation at
a grassroots level. Internal Audit gives
assurance to the CFO on what he thinks

cover story

Audit

is what is actually on ground. It also
helps organisations reduce frauds such
as theft and fraud by employees and also
in identifying accounting malpractices
and financial statement manipulations.
Regular internal audit and checks
can help companies avoid unnecessary
costs which may arise on account of data
breach and product recalls. CFOs should
also assure that resources are allocated
optimally and directed towards generating right preventive mechanisms that can
avoid fraud situations.
Anticipatory and proactive oversight requires a strong emphasis on
up front board involvement in policy
setting, risk assessment and strategy
formulation. Once risks are identified
and sourced, boards should ensure the
management evaluates the companyâ&#x20AC;&#x2122;s
options for managing the critical risks,
leading to policies clarifying responsibilities, authorities and accountabilities.
Internal Audit is critical for building
a culture of accountability and responsibility in an organisation; I believe that
is the biggest case for having an effective internal audit. Further, having an
effective Internal Audit function is the
biggest deterrent to fraud.

mr mritunjay kapur

Managing Director, India,
Protiviti Consulting

cover story

Financial reporting fraud

Prevention
starts
at the

Top

Fraud detection and prevention is
no doubt a management concern.
But all key stakeholders, including
the board and the audit committees,
should be equally involved
Mari Reidy & Jonathan Theobald

Financial reporting fraud

T

en years after the
collapse of Enron Inc
made financial reporting
fraud front-page news,
the issue remains a
serious concern for boards, investors
and the public at large. Today’s public
corporations spend a significant
amount of time and resources
complying with complex regulatory
structures that grew out of the Enron
and other accounting controversies.
But for board and audit committee
members, as well as each and every
financial executive, compliance alone
is not enough. Even to-the-letter
compliance with regulations is no
guarantee that “it can’t happen here”.
What is needed is a more comprehensive and proactive approach to reduce
the risk of financial reporting fraud and
mitigate its potential effects.

State of Financial
Reporting Fraud
Although 2001 was a year in which
financial reporting fraud generated
significant and notable headlines, the
issue is a perennial concern of every
responsible executive. Recognising this,
three premier organisations — Financial Executives International (FEI), the
National Association of Corporate Directors (NACD) and the Institute of Internal
Auditors (IIA) — are collaborating with
the Centre for Audit Quality (CAQ), a
public policy organisation, in a long-term
initiative to help organisations mitigate
the risk of financial reporting fraud.

In conjunction with the announcement of this collaboration, CAQ
released the report, Deterring and
Detecting Financial Reporting Fraud, A
Platform for Action. Many other organisations have also researched the issue at
considerable length. Recent examples
include separate studies by the Committee of Sponsoring Organisations
of the Treadway Commission (COSO)
and the Association of Certified Fraud
Examiners (ACFE).
These various studies have generated
some new insights and reinforced some
long-held understandings about the
problem. For example, ACFE’s ‘2010
Report to the Nations on Occupational
Fraud and Abuse’, found that although
asset misappropriation schemes are the
most common form of occupational
fraud, financial reporting fraud is a
dramatically more costly issue.
Although 90 per cent of the cases
reviewed in the ACFE survey involved
asset misappropriation, the median loss
in these cases was $135,000. In contrast,
financial statement frauds accounted for
fewer than five per cent of the cases, but
were by far the most costly — causing a
median loss of more than $4 mn per case.
The 2010 COSO report, Fraudulent Financial Reporting: 1998-2007,
An Analysis of US Public Companies, zeroes in on this particular type
of fraud, reviewing 347 instances of
alleged fraudulent financial reporting
by registrants of the US Securities and
Exchange Commission.
Among the study’s findings: “The
two most common techniques involved

Legislative and
Regulatory Responses
Have the legislative and regulatory
responses in the years since Enron had
a significant effect on the problem? The
2010 COSO report was unable to reach
a conclusion about the effectiveness
of the Sarbanes-Oxley Act of 2002,
noting that a relatively small number
of frauds examined in the study
involved time periods subsequent to
the issuance of the Act. On the other
hand, when CAQ posed this question
in a series of roundtable discussions it
received a positive response. The CAQ
report states: “The Sarbanes-Oxley Act
provisions are generally held to have
helped reduce financial reporting fraud.
Several CAQ discussion participants
emphasised the deterrent effect of
the criminal penalties for untrue
certifications by the CEO or CFO.”
I n p a r t i c u l a r, t h e d i s c u s s i o n
participants cited requirements of
Sarbanes-Oxley that are designed
to raise the standard of corporate
governance and mitigate the risk
of fraudulent financial reporting.
Examples include provisions that
require all public companies to
establish procedures for receipt and
treatment of complaints (sometimes

At a more fundamental level, auditors must
demonstrate an attitude of professional scepticism
in assessing an organisation’s financial results
and supporting audit evidence
December 2011

CFO i n d i a

21

Financial reporting fraud
referred to as whistleblower
programmes). The act also requires
the CEO and CFO to certify all periodic
SEC reports that include financial
statements, and it establishes criminal
penalties for willful and knowingly
untrue certification.
Regulatory responses to accounting
fraud did not stop with Sarbanes-Oxley,
of course. For example, post-Enron
exchange listing standards impacted
the composition of boards and audit
committees, with requirements for
greater independence, and while
Sarbanes-Oxley requires companies to
establish whistleblower programmes,
the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010,
took this one step further by directing
the SEC to reward whistleblowers
for reporting violations of Federal
Securities Laws.

The ‘Why’ and ‘How’
of Financial
Reporting Fraud
As effective as whistleblower
programmes are, they represent
only one weapon in the anti-fraud
arsenal. Developing a comprehensive
programme to deter and detect
financial statement fraud requires a
broader understanding of how and why
fraud is committed.
On this point, the 2010 COSO study
offers some revealing insights. For

example, in the SEC reports COSO
reviewed, the organisation found
the most common motivations for
financial statement fraud included
the need to meet internal or external
earnings expectations; the need to
conceal a deteriorating financial
condition and a straightforward desire
for personal financial gain, such as
maximising bonuses or the value of
stock-based compensation.
These findings coincide with the classic ‘fraud triangle’, developed by criminologist Donald Cressey in 1953. His
study, Other Peoples’ Money: A Study in
the Social Psychology of Embezzlement,
revealed that three conditions typically are
present when individuals commit fraud:
• Perceived pressure or incentive to
engage in fraud. Examples include
an expectation to meet performance
targets, living beyond one’s financial
means, or simply the need for
continued employment.
• An opportunity. Examples include
an accounting system that is vulnerable
to manipulation, complex transactions,
significant related-party transactions
or a large number of estimates that are
subjective or difficult to corroborate.
• The ability to rationalise fraudulent
behaviour. Individuals who commit
financial reporting fraud generally justify
or explain away their fraudulent actions.
For instance, when members of management are under pressure to meet corporate financial goals, they might conclude

Fraud is not exclusively a
management concern. The
responsibility to deter and
detect fraud is shared with
others including the board
and audit committee, the
internal audit department
and the external auditor
22

CFO i n d i a

December 2011

they have no choice but to resort to fraud
to save their own jobs, the jobs of others
or simply to keep the company afloat
“until the turnaround comes”.
So what types of people are susceptible to these pressures? The history of
an executive or manager often provides
a few clues. In fact, most individuals who
engage in financial reporting fraud have
no history of fraud or criminal misconduct. As the ACFE study observed, “More
than 85 per cent of fraudsters in our study
had never been previously charged or convicted for a fraud-related offence.”
The same study also found that highlevel perpetrators cause the greatest
damage to their organisations. Not
surprisingly, frauds committed by toplevel executives were more than three
times as costly as frauds committed
by lower-level managers and more
than nine times as costly as employee
frauds. Executive-level frauds also took
much longer to detect.
COSO’s study of SEC enforcement
actions that included an instance of
fraudulent financial reporting confirms
this observation. In 72 per cent of
cases reviewed, the SEC’s enforcement
actions named the CEO as being
associated with the fraud; the CFO was
named in 65 per cent of cases.

Whose Job is
Deterrence and
Detection?
Since the majority of significant
financial statement frauds involve
senior management, it’s logical to
conclude that senior management also
must play a leading role in addressing
the challenge. The COSO framework
notes that the CEO (top management)
bears the primary responsibility for the
deterrence and detection of financial
reporting fraud.
At the same time, fraud is not
exclusively a management concern.
The responsibility to deter and
detect fraud is shared with other
stakeholders including the board and
audit committee, the internal audit

Financial reporting fraud
department and the independent
external auditor. Together with
management, these stakeholders
make up what the CAQ report calls
the “financial reporting supply chain”.
The IIA standards assign responsibility
to internal audit for the evaluation
of the adequacy and effectiveness of
the company’s risk management,
internal controls and governance
processes. With respect to fraud,
the IIA’s International Professional
Practices Framework requires internal
auditors to “evaluate the potential for
the occurrence of fraud and how the
organisation manages fraud risk.”
Internal audit’s internal presence,
combined with a strong understanding
of the company’s operations, controls,
culture and fraud risks, make
them well-positioned to support
management in the development of
effective programmes to deter and
detect financial reporting fraud.
The external auditor, in particular,
is responsible for planning and performing the audit to obtain reasonable
assurance about whether the financial
statements are free of material misstatements caused by error or fraud.
Note, however, that while “reasonable”
assurance is a high standard, it is not
the same as “absolute” assurance.
To carry out their responsibilities, external auditors can employ a variety of tools,
such as detailed evaluations of the business rationale for significant or unusual
transactions, or even surprise inventory
observations at unexpected locations.
At a more fundamental level, auditors
must demonstrate an attitude of
professional scepticism in assessing
an organisation’s financial results
and supporting audit evidence. The
Statement on Auditing Standards
No. 99: Consideration of Fraud in a
Financial Statement Audit, issued by
the Accounting Standards Board of
the American Institute of Certified
Public Accountants, requires auditors
to brainstorm on how and where an
entity’s financial statements might be
susceptible to material misstatement

The Job Roles
• The top management bears the main responsibility for the deterrence
of financial reporting fraud
• However, this responsibility is shared with other stakeholders including the board and audit committee, the internal and external auditor
• The internal audit team needs to evaluate the adequacy and effectiveness of the company’s risk management and governance processes
• The external auditor is responsible for planning and performing
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatements caused by
error or fraud
• Board of directors and audit committees must understand the
company’s business and industry and ask probing questions
• Ultimately, the greatest single deterrent to
financial statement fraud
risk is a strong, ethical
tone at the top

due to fraud, which includes the risk
of management override of financial
controls — the single greatest risk factor
related to financial reporting fraud.
Participants in the recent series of
CAQ-FEI roundtable discussions call
the possibility of management override
of controls the Achilles’ heel of fraud.
As the CAQ report notes, “Management
is in a unique position to perpetrate
fraud because it possesses the power to
override controls, manipulate records
and facilitate collusion by applying
pressure to employees and either
enlisting or requiring their assistance.”
To address this risk, boards of directors
and audit committees must thoroughly
understand the company’s business
and industry, ask probing questions of
management and exercise appropriate
scepticism. The board of directors and
audit committee also should assess the
‘tone at the top’ through discussions with
the external auditor, the internal auditor
and employees at various levels.

In addition to increasing security and
strengthening controls, an effective
fraud programme typically will employ
a variety of standard deterrence and
detection methods such as segregation
of duties, background security checks
and fraud awareness training.
Ultimately though, no matter how
many such tools and controls are
applied, no programme can completely
eliminate the risk of financial statement
fraud or completely prevent collusion
and circumvention of controls. The
goal of an effective system of internal
controls is to provide reasonable
assurance that material financial
statement fraud will be deterred or
detected on a timely basis.

A Multifaceted AntiFraud Programme
Ultimately, the greatest single deterrent to financial statement fraud risk is
a strong, ethical tone at the top, which
December 2011

CFO i n d i a

23

Financial reporting fraud
is reinforced by management example
and employee awareness training. This
point was driven home by the CAQ-FEI
roundtable discussions and interviews,
in which participants agreed overwhelmingly that an organisation’s ethical culture is decisive in mitigating the
risk of fraudulent financial reporting.
“While there is no ‘silver bullet’,”
the CAQ report noted, “discussion
participants consistently identified
three themes” that organisations draw
upon to effectively mitigate the risk of
financial reporting fraud. These three
elements are:
1. A Strong, Highly Ethical Tone at
the Top. An ethical corporate culture
cascades down through the organisation
to generate other factors and tools
that help further mitigate fraud risk.
These include a code of ethics visibly
supported by management at all levels
from the top down, regular anti-fraud
training for employees, anonymous
surveys to obtain feedback about the
effectiveness of the training and antifraud efforts and, of course, the vital
whistleblower hotline.
Beyond its important role in helping
to establish an ethical tone, a welldesigned ethics hotline programme
also serves as a hands-on detection
function. The ACFE report noted that
tips were by far the most common
detection method in its study, “catching
nearly three times as many frauds as
any other form of detection”.
Overall, tips were responsible for the
initial detection of more than 40 per
cent of the fraud cases cited in the study.
Significantly, this number increased to
more than 47 per cent in organisations
that had established fraud reporting hotlines. To be effective, such a programme
must offer the opportunity for anyone
reporting a suspected case of fraud to
maintain anonymity, if desired. Ideally,
a tip line will be available 24 hours a day,
seven days a week, staffed by professionally trained interviewers. In addition, the existence of the hotline should
be publicised with consistent messaging to encourage its use.
24

CFO i n d i a

December 2011

In addition
to increasing
security and
strengthening
controls, an
effective fraud
programme
typically
will employ
a variety of
standard
deterrence
and detection
methods, such
as segregation
of duties,
background
security
checks
and fraud
awareness
training
2 . S c e p t i c i s m o n t h e Pa r t o f
Management, the Board and the Audit
Committee. The goal is not to create a
hostile or confrontational environment,
but rather to demonstrate a questioning
mindset that uses probing questions,
with consistent follow-up until the
response is complete and persuasive.
This is often summarised with the
familiar proverb, “Trust, but verify”.
Such healthy scepticism is
demonstrated by management
periodically testing assumptions about
financial reporting processes and
controls, and remaining alert to the
potential for fraud, especially when

ranch banking is at
a crossroads. Although it is still the
single largest mode of banking, the
proportion of branch transactions to
the total is falling, thanks to the rising
popularity of channels like the internet
and mobile, which are quicker to use,
easier to reach and always open. On
their part, banks too, are vigorously
encouraging customers to migrate routine transactions away from the branch
to self-service channels, because that
way they cost far less to support.
That being said, the branch is still the
first choice for some customers and for
certain types of transactions. Senior citizens are generally more comfortable
with face-to-face in-branch interaction,
and less with self-service technology.
Moreover, they draw confidence from
the physical environment of the branch.
Even young customers, who regularly use alterative channels for routine
December 2011

CFO india

25

in practice
transactions, prefer to conduct complex or high-value business within the
branch, in consultation with an advisor.
This explains why, despite the
emergence of other channels, the
branch has held its own, and as per a
recent survey, even expanded by 10 per
cent over the last decade.
Another study predicts that branch
technology will account for a significant
proportion of banks’ IT investment
over the next few years — this can be
taken as a reflection of the industry’s
belief in the channel.
So, it is clear that retail branch
banking will not go away anytime
soon. It is equally clear that it needs
to change in order to stay relevant.
But there are many questions about its
future. To begin with:
What role will the branch play in
an environment dominated by newer
channels? How will the branch drive
growth? What will the footprint of the
future branch look like? What role will
technology play in its progress?

Major Challenges
A look at the major challenges of retail
branch banking may provide some
answers. Tough market conditions

arising from the financial crisis have
brought the banking industry’s focus
back on efficiency. At the same time,
advances in internet and communication technology have completely redefined consumers’ expectations of service,
convenience, choice, and quality of experience. In its traditional form, branch
banking suffers on both counts: it is the
most expensive channel by far, and its
service delivery is hampered, among
other things, by the size of the network,
hours of operation, a usually high workload and limited human resources.
While transforming the traditional
branch to a modern format and enlarging its scope of activity to make it more
relevant seems an obvious course of
action, it’s easier said than done. Breakeven dynamics are tricky to manage.
The time taken to recover the investment depends on a host of factors and
varies from branch to branch. Studies
across several developed and emerging
markets indicate 12 to 15 months as the
benchmark, achieved by well-run banks
offering the widest range of services.
This challenge is compounded by bank
managements’ self-imposed target of a
six to eight month break even.
Staffing poses another problem.
First, banks must allocate optimal

human resources — carrying the
required expertise and experience —
for various roles. Finding the right
people is the harder part. Around the
world, banks are staring at a talent
shortage. A study conducted in 2008
by a global consulting firm predicted
that by 2013, European banks could
struggle to fill between 25 and 40 per
cent of key positions.
So far, branches have mainly
enacted a transaction-fulfillment
role, remaining isolated from the
banks’ sales and merchandising
efforts. So they have not been able to
spread enough awareness about their
full range of offerings within the
customer community.

Reinvention of branch
banking
From the above, it is clear that in order
to sustain, branches must transform
their cost structures and processes.
Gen-Y customers rarely visit the
branch, preferring to conduct most of
their activities online or over the mobile
phone. However, once they mature into
their 30s, their financial needs will go
up significantly as they look to buy a
home, make various investments, and

Points to Ponder
• A 2009 survey shows that nearly half of the worldwide Gen-Y
population lacks financial literacy and has little understanding
of how to budget and save efficiently
• By proactively reaching out to younger customers and
strengthening the advisory capability of their branches,
banks can attract business from existing and new
customers in future
• The future could belong to the multi-line branch, one that is
part of a full system of banking comprising all services and
all modes of delivery
• Branch employees should be given cross-functional training,
spanning operations, sales and service, it could noticeably
improve productivity and quality of service

in practice
provide for the family. And this is
where branches have an opportunity.
According to a 2009 survey by the
National Foundation for Credit Counseling, nearly half of the worldwide Gen-Y
population lacks financial literacy and has
little understanding of how to budget and
save efficiently. Therefore, it is very likely
that many Gen-Y customers will feel the
need to consult their bank advisor while
making important financial decisions,
which will drive them to the branch. By
proactively reaching out to younger customers and strengthening the advisory
capability of their branches, banks can
attract business from existing and new
customers in future.

Customer Relations
Banks have leveraged technology to
simplify, standardise, automate and
centralise their operations en route to
creating a one-stop branch. In doing so,
they have managed to reduce transaction processing time and paperwork
and greatly improved the in-branch
experience. But they can still do a lot
more to better the branch experience.
Today, branch staff are only trained
in and assigned to specific responsibilities, which not only limits their
personal growth but also increases the
time that customers must wait before
a specific staff member becomes available. If branch employees could be
given cross-functional training, spanning operations, sales and service, it
could noticeably improve productivity
and quality of service. Cross-functional
training could be imparted in several
ways — by rotating people on the job;
getting employees with diverse specialisations to work within a team; providing social platforms, such as blogs and
wikis to facilitate knowledge sharing;
and of course, delivering formal lessons
in a classroom environment.

Leverage Technology
Banks are already highly technology
driven. They must continue to stay at

“By proactively reaching
out to younger customers
and strengthening the
advisory capability of their
branches, banks can attract
business from existing and
new customers in future”
the leading edge of technology in order
to satisfy the expectations of future techsavvy customers. Banks must construct
a new image for their branches,
improve product communication to
customers, increase productivity and
reach, and above all enhance customer
service and experience.
Despite establishing branches in
high traffic urban markets, retail banks
rarely manage to tap their full potential.
Their transaction-oriented approach is
undoubtedly a factor. The future could
belong to the multi-line branch, one
that is part of a full system of banking
comprising all services and all modes
of delivery. The focus of the multi-line
branch will be to right sell, rather than
achieve transaction volumes, and it will
do so by ensuring that the best suited
products — be it loans, payments,
financial advice, brokerage services,
investments or insurance — are made
available to each customer.

Network Management
In many markets, there are several
customers with high value needs, albeit
not in sufficient quantity to justify an
elaborate physical branch network. In
these places, a thin network of attractive
branches backed by a strong network of
ATMs might be able to achieve a high
level of efficiency and also manage
to adequately serve customers. The
branches will need to focus on drawing

incoming traffic and capitalising on each
customer interaction to generate cross
sales. In this way, banks can rewrite
their branch strategy, and rather than
building the most number of outlets,
create just the right number, with the
right capabilities, in each market.
While the adoption of multichannel
banking and cost advantage of selfservice channels has eroded the dominance of bank branches, it would be a
mistake for banks not to focus on them.
Branch banking is still the heart of the
retail banking experience. The need of
the hour is a comprehensive review of
branch needs along with informed and
systematic action. By adopting some or a
combination of the measures described
here before their competitors do, banks
can differentiate their branches from
the run-of-the-mill. At the same time,
they need to remain lean organisations
in order to maintain peak performance,
especially during an economic downturn. Rather than expand relentlessly,
banks must maintain optimal branch
density for a particular market and align
sales and service capacity with market
opportunity. Given these ministrations,
the heart of retail banking will continue
to beat strongly.
S araswat S ar k ar
is a Consultant at
Finacle-Infosys. The
view expressed here
are personal
December 2011

CFO india

27

in practice

TECH WISE Samiron GHOSHAL

Managing risk in
the cloud – a CFO’s
perspective
What are the key issues that CFOs need to address
when it comes to cloud computing?

A

ABOUT the
AUTHOR: Samiron
GHOSHAL is a
Partner with
Ernst & Young’s
Advisory Services
and heads the IT
Advisory practice
in India. The views
expressed here
are personal and
do not necessarily represent the
views of Ernst &
Young Global or
any of its member
firms.

28

CFO india

recently conducted Global
Information Security Survey by Ernst & Young
reveals that 61 per cent of respondents are currently
using or planning to use cloud computing-based
services within the next year. With its ability to deliver on-demand and rapidly elastic services, cloud
computing has been able to significantly lower if
not eliminate IT related competitive barriers that
businesses faced in past. In India, with high-speed
internet connectivity becoming ubiquitous, businesses are recognising the speed and efficiencies
that the cloud computing model delivers.

Why is cloud computing
important for CFOs?
Adoption of cloud computing entails resolution
of various financial as well as governance, risk
and compliance related issues – many of which
require the CFO’s attention or intervention. A
variety of business benefits are put forth while
making a cloud computing business case. The
key ones include:
a. Business agility
b. Improved quality of services
c. Cost savings and
d.Improved security due to centralised
management.

December 2011

These benefits notwithstanding, CFOs need
to take an objective view of their specific cloud
opportunity and risk profile while evaluating the
business case. In this article, we have made an
attempt to put forth a few key factors that CFOs
can take into account to develop a risk profile for
cloud computing solutions, and measures that
can be taken to manage cloud exposure.

Factors to be considered
in risk profiling of cloud
computing solutions
Two aspects define any cloud computing
solution. The category of cloud service being
procured — Software-as-a-service (SaaS),
Platform-as-a-service (PaaS) or Infrastructureas-a-service (IaaS). The deployment model for
these services can be private, public or hybrid
cloud deployment. Each combination of the
category of service and deployment model
presents a different risk scenario.
Three key factors need to be considered in risk
profiling any proposed cloud scenario. These are:
1. Data protection, non-disclosure and
confidentiality: Data protection is one of
the complex issues associated with cloud
enablement. In a cloud-enabled scenario, it is

TECH WISE

Charu dwivedi

CFOs need to take an
objective view of their
specific cloud opportunity
and risk profile while
evaluating the business case

inevitable that personal and sensitive data
would be processed by the cloud service
provider. Depending upon the cloud service
and model adopted by the business, such
data may reside in geographies falling under
multiple legal jurisdictions.
In the Indian context, the data privacy
regulation under the Information Technology
(Reasonable Security Practices and
Procedures and Sensitive Personal Data or
Information) Rules, 2011, is expected to have a pan-industry
impact on how IT manages data.
Given this scenario, it would be useful for CFOs to ask the
following questions:
a. What data is likely to be moved to the cloud?
b. W hat is the likely change in the existing information
security controls over data?
c. What forensics and evidence gathering mechanisms are
offered by the cloud provider (‘CP’)?
d. Does the move impact any of the existing regulatory
compliances or any future compliance needs the business
may have?
e. In the event of a future change in the CP, what safeguards
are available to port the data to a new provider or back to
the in-house IT team?
2. Outsourcing contract and changes in control:
Outsourcing in the cloud context needs to be looked at from
multiple angles:

a. The core contract between the business and CP
b. The various sub-contracts that the CP may have with other
service providers and
c. The possibilities of the CP being engaged in other business
transactions such as mergers or acquisitions.
From a legal standpoint, the contract with cloud service
provider itself would require special attention. Unlike
traditional outsourcing services, standard contract clauses
may deserve additional review because of the nature of cloud
computing. Particular attention should be paid to:
• Rights and obligations related to notifications of breaches
in security
• Data transfers
• Creation of derivative works
• Change of control, and
• Access to data by law enforcement entities.
Because the cloud can be used to outsource critical IT
infrastructure, the parties should carefully consider the
December 2011

CFO india

29

TECH WISE

The Information Technology
Act along with the associated
data privacy regulations and
the proposed cloud computing
regulations from TRAI are expected
to be the defining set of guidelines
allocation of liability in the contract.
As cloud services become more widespread, the threat of
malicious insider is increasing and abuse of high privilege
access is a definite possibility. The sub-contracting aspect,
therefore, deserves special attention. It is inevitable that the
CP has one or more sub-contracted service providers. Such
sub-contracts are also likely to change frequently. Therefore,
it is useful to establish a higher degree of transparency
within the contractual framework and extend some of the key
contractual clauses to cover sub-contractors as well.
3. Vendor lock-in/Data and service portability: Vendor lockin and difficulties in data and service portability are important
risks to be considered in evaluating a cloud offerings. As of
today, few standards exist for enabling such data and service
portability. Indeed, cloud providers have an inherent incentive
to prevent such portability. The extent and nature of lock-in
varies according to the cloud type:
a. SaaS model: The SaaS model by its nature can create
data and application lock-ins. While data migration may still
be made possible, migrating to a new software environment
without affecting the customer experience can entail very
high costs for the business. In addition, where the business
has developed programs to interact with the cloud providers
API directly (e.g., for integration with other applications),
these will also need to be rewritten to take into account the
new providerâ&#x20AC;&#x2122;s API.
b. PaaS model: Lock-in in the PaaS model will be more
severe than in the SaaS model as the cloud provider would
have invested significantly in optimising the platform. To
recreate such a platform or to move to a similar platform
would require significant efforts application re-engineering
in addition to the data lock-in issues.
c. IaaS model: The degree of lock-in will depend on
the nature of solution purchased. In a nutshell, there are
non-trivial technical challenges and costs associated with
migrating to another player.
Given that the cloud computing provider market is still
evolving, there exists a high risk of having to migrate mid-way
through a cloud-enablement contract. These could be due
to bankruptcy of the provider or mergers and acquisitions.
30

CFO india

December 2011

Hence, strong due diligence of the cloud provider is
recommended as part of any outsourcing contract.
Managing risk in the cloud-enabled scenario
As a consequence of the above risks, the role of CFO is vital
in not only finance related aspects of outsourcing to a cloud
provider but also the governance, risk and compliance issues.
Addressing GRC issues is made more complex for the CFO
by the fact that the regulatory framework for cloud computing
is still evolving in India.
The Information Technology Act along with the associated
data privacy regulations and the proposed cloud computing
regulations from TRAI are expected to be the defining set
of guidelines. In addition, risks derived from industry and
geography specific regulations such as Safe Harbor, COPPA,
PCI, SOX, GLBA, HIPAA, etc., would need to be evaluated
prior to proceeding with acceptance of cloud computing
solutions.
In brief, CFOs can take the following measures to manage
business risks due to cloud exposure:
4. Establish a robust enterprise information classification
and controls mechanism: A strong information classification
framework will help in faster assessment of the cloudenablement proposal and ensure that adequate measures
are available for safeguarding confidentiality, integrity and
availability of your data.
5. Develop cloud opportunity profile specific for your
organisation: The core value proposition of cloud migration
is business agility and better quality of services. While a host
of benefits are provided by cloud solutions, it is important
to view them relative to the extent of agility and quality of
services that the migration offers.
6. Develop cloud risk profile specific to the identified
opportunities: Considering that the risks of cloud computing
extend beyond IT itself, it would be useful to link the cloud
risk profile to the overall Enterprise Risk Management
initiative of the organisation.
Cloud computing provides CFOs with a host of new
opportunities to help the enterprise grow, provided, an
objective evaluation of the opportunities that cloud migration
presents against the potential risks is carried out.

cfo

Profile Sunil Kakar
Group CFO, IDFC

Player
to
Coach

Life is a game, albeit a serious
one, for Sunil Kakar, the CFO
of IDFC. “Every time I go out
to play, I hit a century — and I
don’t mean cricket,” he says

rakhi agarwal

32

CFO india

December 2011

He could have been a doctor. Instead
he became an engineer. And then went
on to become a CFO. That’s how Sunil
Kakar, Group CFO at IDFC sums up his
life at the beginning of our interview. Not
surprisingly, we are keen to know more.
A student of St Xavier’s School in Kolkata, Mr
Kakar was a regular at school debates and a keen
follower of all sports, especially cricket. A good
student, he dreamt (like many teenagers back in
the 1970s) of being a doctor. In the end though
it was perhaps his fear of needles, or, the opportunity to study at IIT Kanpur with a scholarship
that decided his fate.
Since then his career, he believes, has
been one amazing joy ride. “I felt as if I was
acting in the film Sholay, in my first job at the
Indian Aluminium Company,” he says. Why
so? Standing in the midst of the bauxite and
aluminium mines, Mr Kakar realised that this
was not where he wanted to be, professionally.
But he did not quit, choosing instead to work
for two years to save money and do an MBA

Jiten Gandhi

From

Milestones
First Job
Indian Aluminium
Company, Ranchi
A HA! MOMENT
When I hit an
‘eagle’ on the golf
course
TOUGHEST
CHALLENGE
Computerisation
of a bank branch in
Kolkata in the late
1980s
LESSER-KNOWN
FACT
My cell phone
screen saver is a
picture of my pet
beagle, Ginger
Dream
To teach finance at
the MBA level

December 2011

CFO india

33

cfo
Profile
from XLRI, Jamshedpur. His first learning gave
him an insight into the ways of people, blue
collared versus white collared, and the ability to
deliver as a team.
His next job at the Bank of America made
him, by now married, very happy, as it brought
him back to his family in Kolkata. The year was
1983, when foreign banks brought with them an
ethos of excellent work culture. Here, Mr Kakar
got the opportunity to work abroad for two years
and understand worldwide banking processes.
“There were no computers then, and we had
to do trial balance on a daily basis. This helped
build a strong foundation and strengthened
my basic skills in finance and accounting,”
he recalls.
He spent the next 18 years in this job, facing
several challenges on the way. What kept his
interest going was the chance to do something
different every few years. In 1994, at the time
of the Harshad Mehta scam, there was a major
overhaul and he was parachuted treasury management under the scope of risk management.
Cleaning up the mess the scam had generated,
he learnt how to walk the tightrope. “This stint
made me realise that short-term gains only lead
to long-term pains. I also learnt not to take good
times for granted; because when you run too
fast, you will fall. Slow and steady is the way to
sustainable performance,” he says.
The next phase of his career had him shift
base from Kolkata to Delhi. And this is where
he discovered a new love — golf. Every morning, except for Tuesdays, he would leave home
at 5.30 am to ‘play the field’. Later, at work, he
had to again learn a new game — wholesale life
insurance at Max New York Life. “Here I worked
as if I owned the company.
If you want to enjoy work, you need to be
passionate about what you’re doing. But if you
want to succeed, you have to take ownership. So
I worked myself up from scratch, building a sincere team in place. I was like a money manager,
ensuring that all our decisions stay responsible
to the money of the investors. The policy holders
had placed their life’s earnings and trust in us,
and that is a huge responsibility,” he says.
The gestation period in the insurance business is longer, but he and his team helped the
company turn the corner sooner, so that when
he left the company 10 years later as its CFO,
it continued to do well as planned. “I believe
one must work to leave behind a legacy, which
34

CFO india

December 2011

Favourite

Picks
NEWSPAPER

Times Of India
MAGAZINE
Business Week/

Bloomberg
FILM
3 Idiots (As I am an
IITian)
MUSIC/MUSICIAN

IN HIS 25 YEAR CAREER SUNIL KAKAR HAS WORKED
ACROSS SECTORS AND BUILT TEAMS FROM SCRATCH,
PICKING UP VALUABLE LEARNINGS ALONG THE WAY

Contemporary/ AR
Rahman
DESTINATION
Mauritius
ROLE MODELS
No one (Am a
self-made man)

can carry on much after the person has moved
on. An institution or process is more important
than an individual,” he adds. At Max, Mr Kakar
learnt that being a coach of the game is more
important than being a player. And that success
of an organisation lies in its people. Therefore,
he has always desired to build systems in which
the people aim for a common goal. His mantra
being that people plus processes always lead to
profit in the financial services industry.
Mr Kakar moved to IDFC as Group CFO
in February 2011. “At 50, one is resistant to
too many changes. So what I don’t understand, I don’t take a risk with. Because when

cfo
Profile

“One must work to leave behind a legacy,
which can carry on much after the person
has moved on. An institution or process is
more important than an individual”

you gauge a risk wrongly, there is a
problem, and money flows into risky
assets without the right price.” So
he makes sure that capital flows in
the right direction at the right price.
He believes the better you are at allocating capital proportionate to the perceived risk, better is the bottom line.
And his aim is to make IDFC the largest and the best in the field of infrastructure and to reach a target of Rs 1
lakh crore. The good news is that IDFC
is already halfway there.
In the lending business, it is
imperative to allocate money to the

right project and convince the lenders
of the performance of the company.
“To make them believe that we are the
experts for infrastructure financing
is important,” he reveals. In the few
months that he has worked here, he
has realised that one does not always
measure oneself by his Form 16;
but by the kind of contribution one
has made within the organisation.
He believes that a CFO represents
the shareholders; and acts like a
stakeholder delivering value to the
shareholders. So he is cautious and
acutely aware of the risks, because, as

he says, “unknown risks blow me off.
Unless I get a loose ball, I’m not going
to hit a lofted shot.”
His biggest worry: To be successful
in plugging the loopholes when he is
given a task. “I first try and identify
things that can go wrong. At IDFC,
money is the oil that runs the engine.
So when I can channelise this money to
the right end use, I feel I have contributed towards building a nation.”
His dream: to transfer his learnings
to the younger generation so that
they are better prepared to handle the
corporate world.
December 2011

CFO india

35

in practice

Face to Face

“Average is
officially over”
Tom Friedman
Kick-starting preparations for the 2nd Annual CFO100 in 2012, 9.9
Media and Microsoft India brought together some of India’s most
respected CFOs and finance leaders for a discussion with Pulitzer
Prize winning author Tom Friedman. Excerpts from his talk...
TEAM CFO INDIA

T

he global curve has risen
and what that means is that average is
officially over. Whatever you do you better not be average, because your boss has
access to above average automations,
labour, robots and deals, more than ever
before. I call it the great inflection.

ON REINVENTING &
RE-ENGINEERING JOB ROLES
The 2008-09 recession actually ushered
in this change even faster than it
normally would have happened.
Recently, I met this banker in Dallas
and he said something that really stuck
in my mind: “You only hire someone
if you absolutely have to”. That is the
mindset now. You only hire someone
if the alternative software automations
36

CFO india

December 2011

and cheap labour are not available. If
you are in that 1 per cent, you really
have a global audience and globally
competitive skills. You can come to
Mumbai or go anywhere and compete
with the best. The 99 per cent who
haven’t yet made the shift are really
suffering and that’s what we are seeing
right now.
One of the chapters in our new book
is called ‘Up in the Air’. It is a name
inspired by the movie Up in the Air,
where George Clooney plays this man
whose job is to go around the world
firing people face-to-face on behalf of
a multinational. He loses his job when
his assistant invents a cheaper way to
do it over the internet. This really is
what hyper connectivity is all about.
Then we have a chapter called

‘Helpline’. We went around to
companies of all kinds, and we
interviewed all their heads. We found
that all the people are the same. They
said the employee who can do critical
thinking and reasoning is the ideal
employee. What they are really looking
for are employees who can invent,
reinvent and re-engineer their jobs. The
world has become hyper connected,
the pace of change much faster. The
CFO or the CEO often has no clue as
to what’s happening across all levels.
If you don’t have employees who can
invent, reinvent and re-engineer the
jobs, whatever they are doing in this
fast paced world, it can be a burden.
Everyone has to show that he or
she has a unique value proposition,
wherever you are in the company.

in practice

“Everyone has to show that
he or she has a unique value
proposition, wherever you
are in the company”
Because if you can’t grow with the
rising curve, the pressure on you is
much higher. Back in January 1995
I heard my predecessor at New York
Times speaking about competition. I
knew every morning the first thing he
asked himself was “I wonder what my
seven competitors are doing?” And he
knew who all the seven were. Today, I
assess myself everyday similarly and
ask, “I wonder what my 70 million
competitors are doing”.

Recently, I was in Hong Kong and
my column for New York Times went
online at 10:30pm local time. Within
minutes, there were feedback emails
from all over the world. Years ago, if
I wrote about Yasser Arafat, a copy of
NYT would not reach Palestine till a
week later by which time I would be out
of the country. Now it’s instant. So if I
write anything wrong I’m going to get
an immediate feedback. So my advice
to all mothers and fathers is to tell your

kids that they better find excellence
because average is not there.
The truth is it’s not enough to say “I
am in a job, I’m a lawyer’ or a doctor”.
Now you have to be creative, create a
job, be innovative. Imagine, recently
this law firm I know of, hired a chief
innovation officer. If you want to see
this game at its unbelievable best, look
at America. Look at Google, Amazon,
Apple and Facebook. Each one of them
are into each other’s businesses. They
December 2011

CFO india

37

in practice
are all making phones and selling
e-commerce. They all offer similar
services. They are going to kill each
other. I think they are absolutely
fantastic for the consumer, but they
are just killing each other and everyone
else. I would not want to be No. 2 to any
of these companies.

ON INDIA’S PROGRESS
The situation in India is similar too.
The high-tech, connected people constitute just one per cent of the Indian
population. They are the ones making
international headlines. Only by leveraging technology in every way possible
can India make sure the other 99 per
cent also get there. What excites me is
that between 2004 (when I first visited
India) and today, I can see the emergence of Indian engines to make India
unpoor. India’s getting unpoor not
because it has more IMF or World Bank
backing. Rather, because you invented
and nurtured Indian engines to make
Indians unpoor. Indian companies are
now solving India’s very specific problems, whether its banking or agricultural prices or leveraging.

ON AUTOMATION
There’s a revolution going on at Wall
Street and there is another, much
larger, but silent revolution going on
elsewhere in the country. Together,
Facebook, Apple, Amazon, Zynga and
Groupon may be worth half a trillion
dollars. But think of it, you could
probably put all their employees across
the world into Times Square and there
would still be space left. Together
the five of them, I believe, don’t have
more than 30, 000 people. So these
companies are anticipating incredible
valuations but not a lot of work to be
done by humans. They are actually
creating an enormous amount of work
but not how we classically think of work.
We think of ‘work’ as the Ford factory
coming with 5,000 new jobs. Today,
many of the jobs that are being created,
38

CFO india

December 2011

can’t be seen because it’s one person
creating jobs for 10 in one country and
20 or 50 in another country in a very
different industry! Just look at Linkedin
as a case in point. They do not employ
that many people, but they create jobs
for thousands of others. I went to this
company in Delhi whose employees
are all sourced from Linkedin. There
is a huge amplification that many of
these new age companies are creating.
I think we are in the middle of a huge
revolution but no one’s talking about it

ON PROTECTIONIST
SYSTEMS AND THINKING
INNOVATIVELY
For all the talking about job protection,
I think that game is over. You cannot
protect your way. Technology will defy
you. When I graduated college in 1975,
I got a fine day job. Today, new graduates will still get their first job, but to
keep that job they will have to invent and
re-invent and re-engineer the job. During the recession, a law firm in the USA
was laying off people. So I asked how it

That Used To Be Us
tHE BOOK TALKS about how America has fallen behind and how they can regain
lost glory. The authors argue that America has a huge problem. It faces four major
challenges, on which its future depends, and it is failing to meet them. In That
Used to Be Us, Thomas L Friedman, the celebrated New York Times columnist, and
Michael Mandelbaum, a leading foreign policy thinker, analyse those challenges
— globalisation, the revolution in information technology, the nation’s chronic
deficits, and its pattern of energy consumption — and spell out what USA needs to
do now to ‘rediscover America’.
They explain how the end of the cold war blinded the nation to the need to
address these issues. They show how American history, when properly understood,
provides the key to addressing them, and explain how the paralysis of the country’s
political system and the erosion of key American values have made it impossible
for the nation to carry out the policies the country needs. They offer a way out of
the trap into which the country has fallen, which includes the rediscovery of some
of the most valuable traditions and the creation of a new, third-party movement.
That Used to Be Us is both a searching exploration of the American condition
today and a rousing manifesto for American renewal. “As we were writing this
book,” Friedman and Mandelbaum explain, “we found that when we shared the
title with people, they would often nod ruefully and
ask: ‘But does it have a happy ending?’ Our answer is
that we can write a happy ending, but it is up to the
country — to all of us — to determine whether it is
fiction or non-fiction. We need to study harder, save
more, spend less, invest wisely, and get back to the
formula that made us successful as a country in
every previous historical turn. What we need is not
novel or foreign, but values, priorities, and practices embedded in our history and culture. That is
all part of our past. That used to be us and can be
again — if we will it.”

in practice

Mr Tom Friedman (in white) discusses a
point with the group of CFOs and senior
finance leaders at the session

“Indian companies are
now solving India’s specific
problems whether its banking,
agri prices or leveraging”
was being done and whether it was the
last-in-first-out policy. What I learnt was
fascinating. Each employee was given a
job to do. Those who completed the task
in a routine manner didn’t make the cut.
Those who thought and found a newer,
faster, more efficient way to do the job,
were retained. That is why I have three
very simple pieces of advice to people:
Think like an immigrant, think like an
artisan and think like a waitress.
How does an immigrant think? He
knows there is no legacy, no certain
seat waiting for him at IIT Delhi.
Either he does really well and grabs

the opportunities or he doesn’t have
enough to eat, to survive. So he values
every opportunity a lot more. So think
like an immigrant. Be hungry.
Why an artisan? Artisans make each
item with a lot of love and care. Every
piece of furniture individually and they
carve their initials on their creations
because they are proud of what they do.
Do your job everyday as if you are ready
to carve your signature on it. So think like
an artisan and be proud of what you do.
Finally, why a waitress? Here’s why.
Some years back, I was writing a book
and went to a restaurant for break-

fast with my friend Ken on a Sunday
morning. I ordered three pancakes
and scrambled eggs and Ken ordered
three pancakes and a bowl of fruit. After
about 15 minutes when the waitress
came with our orders, she whispered to
Ken “I gave you extra fruit”.
She got a 50 per cent tip. Why? She
showed that she did not control much
but she controlled the fruit supply and
that was her extra to a valued customer.
She was thinking entrepreneurial.
Every person has to think like an
entrepreneur. That is the only way to
survive in this new world.
December 2011

CFO india

39

in practice

technology

“Connect Everything,
Empower Everyone”
The role of a CIO is constantly changing with disruptive trends in the
space of technology. Kevin Johnson, CEO, Juniper, shares his views
on the key technological disruptions in recent times
Pramath Raj Sinha

Q

What according to you are
the key emerging trends in
information technology?
The key trends in technology that are
shaping business currently are mobile,
social and cloud. Starting with mobile,
we’re in an era where phones, tablets
and mobile internet, etc., are being
used by consumers and businesses to
access information and data.
This is creating some interesting
opportunities and challenges for the
CIOs. To begin with it creates a new class
of applications. Starbucks, for instance,
has built a mobile payment application
for loyalty card holders wherein you just
pull out your iPhone or Android device
and pay using it, while keeping track of
all your personal information.
While many CIOs say they do not allow
personal devices at work, studies reveal,
about 90 per cent employees have carried
their personal devices to work and over 80
per cent have used that to access corporate
data. Either CIOs put up restrictions on
such behaviour or look for a solution to
allow this in a secure manner.

40

CFO india

December 2011

At Juniper, we did the latter. We
changed our device policy and instead
of Juniper paying for the device, we have
the employees paying for it. So they get
to pick their device, but we have a solution that allows these devices to connect
securely to the network.
For this, we created a product called
Junos Pulse that runs on most mobile
platforms and allows secure connections
to corporate data. If an employee loses the
device, we can centrally wipe that device
and also locate the lost device using GPS.
Social is the second main technology
trend shaping business. It is making
inroads into the business in two key
ways. First, businesses are using social
tools to reach their customers better,
evangelise better and to stay connected
to their opinions. Companies are thinking how to utilise and leverage the social
— the fact that people are connected.
The other place where the social is
helping is by enabling employees to collaborate. For example, at Juniper we use
Salesforce.com’s Chatter. Chatter is like a
business version of Facebook and allows

employees to have a page that is within
the company firewall. And it allows us, as
a company, to put all the relevant content
up there for the employees.
It also allows employees from different geographies to gain from each
others’ experience and collaborate. It is
different from email, as it works in the
Facebook manner.
Cloud, in many ways is just a buzzword and every technology company
in the world is putting up the term in
some or the other product.
But there are some fundamental drivers for cloud computing. In its simplest
form it can be seen in the the infrastructure of the data centre — by centralising the storage and servers and by
virtualising them for higher utilisation
and then by automating the data centre.
There are significant economics to be
derived by just doing that.
In addition to that, if you’re a midmarket firm and do not have the critical mass or scale to centralise and
automate your data centre, you will
consider someone else to do it — a ser-

in practice
cloud computing, or is the network that
enables the mobile internet, using which
billions of devices are connected.
We are, therefore, mindful of such
trends. We are also conscious that security becomes an important issue when
you have everything connected, and the
fact that these devices and technology
are in many more hands around the
world, and not all are secure.
Cyber threat is real and the changing technologies and threat vectors
are evolving. Today, there is economics behind cybercrime and well-funded
entities are indulging in it.

The interesting thing about
mobile, social and cloud is that it
could not have happened without
the network
vice provider or a SaaS-based application. There is a lot more to unfold in
terms of applications, to enable more
advantage of cloud.
The three trends also bring in a
host of accompanying security

challenges for a CIO. What do you
have to say about this?
The interesting thing about mobile, social
and cloud is that it could not have happened without the network. The fact is
that the network is within the data centres
and connects the data centres together for

Are you genuinely convinced
about the economics of cloud?
Is India just behind the curve for
cloud computing?
If you do the mathematics behind the
economics of virtualisation, centralisation
and automation, it is easy to prove that
the economic benefits of this model are
significant. If you then try to apply these
economics to your IT operations, it is very
difficult. Our Co-founder, Pradeep has this
principle â&#x20AC;&#x201D; centralise whatever you can,
but distribute only when you must. And
it is mathematically proven that when you
distribute things, it costs more and centralisation costs less. Thatâ&#x20AC;&#x2122;s the principle
on which we engineer our technology.
So when you look at cloud in that way, it
seems simple to justify the investment.
However, when the IT team says that we
need to invest a few million dollars before
we can save from this technology, it is a
tough decision for the management.
Given the trends, CIOs have too
many trade-offs to worry about.
Do you think life has become
complicated for the CIO?
Whatever market trends there are today,
are creating the most complicated situation for the CIO. In my 30-year career,
Iâ&#x20AC;&#x2122;ve seen many significant technology
evolutions and disruptions. You may say
that they are accelerating, but they do
build upon one another. So, while the
number is much higher, they were still
very significant even 20-30 years ago.
December 2011

CFO india

41

Case

Study

Project Map
The challenge:
Set-up Spencerâ&#x20AC;&#x2122;s commercial
function and lead a project to
grow the retail chain from 90 to
400 stores.
Time Period:
2006-2008

42

CFO india

December 2011

People Involved:
Entire commercial team along
with the IT and business teams
Key Takeaways:
Honest and timely
communication will resolve
most bottlenecks

Case Study

The

Challenges
of a Retail
Revolution

When Spencer’s Retail wanted to scale up operations rapidly,
the company fell back on its finance department to lead the
charge. That is when Rajesh Pasari and his team stepped in.
Now CFO at NetAmbit, Mr Pasari recalls how the challenge
was successfully overcome

Subhojit Paul

F

Mitia Nath

rom working in a leading
beverages firm and setting
up the commercian
function for a retail giant
to being the CFO of a startup financial products distribution
company, Rajesh Pasari has traversed a
long path in his two-decade-long career.
So when we meet him for a chat in
NetAmbit’s plush new office in Noida
on a foggy December afternoon, we
expect him to tell us about one of his
more and exciting experiences. And he
doesn’t disappoint us.
Among the various challenges,
including obvious ones that a CFO
faces in a start-up situation, Pasari
singles out his experience at Spencer’s
Retail a few years back, as one that he
values most. It was a time when the

Indian retail industry was booming.
“There was a massive thrust on retail
and some of the biggest names like
Reliance, Goenka, Birla, and Tata were
involved,” he recalls. Taking on the role
of the head of the commercial function
of Spencer’s Retail naturally implied
a head-on competition with the ‘big
guys’. Spencer’s plans were ambitious:
grow its chain from the 90-odd stores
it then had, to about 400 stores in the
next two years.

The Challenge

recalls. If this was not enough, he knew
he also had to get all internal stakeholders on his side. “ Normally finance guys
are looked upon as bottleneck builders. Even the Operations, Merchandising and Business teams presumed
we would only delay things,” he says.
However, having been brought up in
Kolkata where doing business needs a
lot of quick thinking, he realised that
it was imperative to get into the good
books of stakeholders if they were to
work together. Beyond that, he’d have
to let his work do the convincing.

When he joined Spencer’s in 2006,
he not only had to head the commercial division, he also had to establish
it! “I was the first person who joined
that function. I was told that the company had massive expansion plans,” he

“The first thing I did was to get my
team in place,” says Mr Pasari. This
meant not just appointing team members but also conceptualising the role of

How It Was Tackled

December 2011

CFO india

43

Case Study

“My zonal managers were equally
important in helping the regional
centres take the business forward. They
contributed a great deal in putting a
lot of systems in place, increasing the
bottom line and revenues”
each member. He began by appointing
five zonal commercial managers, two
analysts and one national stock controller. “When I moved on about two and a
half years later, the team size was 110,”
he says. The note of pride in his voice is
hard to miss.
As the coffee arrives, we drag him
back to the unfolding story. So what
happened next? “I personally met all
the stakeholders and merchandisers,
and gave them an insight into the plans
and objectives we had envisioned for the
growth of the company.” He believes
that personally meeting each of them
worked as an icebreaker. Thankfully,
he was quick to spot the icebergs which
could potentially threaten the journey.
Recovery of few crores towards an old
compliance issue was an early breakthrough for Mr. Pasari and was highly
appreciated by the merchandising team.
Pilferage, a persistent menace in the
retail industry across the globe, was one
44

CFO india

December 2011

such ‘iceberg’ that Mr Pasari managed to
control to a large extent. It meant tighter
controls over stocks and inventories.
To put a system in place he brought
the IT team into the picture. The idea
was to get the IT team to design packages and softwares to enable the business
function to have more stringent controls over stocks — absolutely essential
in retail. “The commercial function
of the company became the interface
between the IT and business functions,” he remembers. Over time, the
IT team at Spencer’s customised a lot of
softwares that made business processes easier. As pilferage rates dropped, it
became a benchmark for the industry.
An additional feature that led to
greater revenues was the introduction
of the shop in shop or the ‘concessionaire’ concept. Named ‘Concessionaire
Viability Template’ (CVT), it involved
commercial evaluation of having an
independent outlet of another popular

brand within the store. It was an instant
hit. It helped the company increase its
revenues and more importantly, satisfied the stakeholders. “It gave us clear,
visible results,” he says.
And clear results he had. Spencer’s
had 96 stores at the time Mr Pasari
joined in 2006. By the time he left , the
number had grown to over 400.
Another interesting initiative by Mr.
Pasari was the introduction of a concept
called RDDD (Revert, Divert, Dilute
and Dispose) which reduced the working capital blockade in inventory from
68 days to 43 days for the company
When one has numbers to back up
one’s success story, there is little else to
say, but Mr Pasari is quick to point out
that none of this would have been possible without his team. “My zonal managers and analysts were equally important in helping the regional centres take
the business forward. They contributed
a great deal in putting a lot of systems
in place, increasing the bottom-line and
revenues,” he adds.
T h e c o m m e r c i a l f u n c t i o n a t
Spencer’s was the only one that
remained untouched by the ups and
downs of retail. He admits that the
kind of function he established and
developed in Spencer’s exists only
in very few retail companies. “You
will find a commercial function of
this sort — one which partners with
the business function to ensure that
processes are in place — only in, say a
Levers or a Marico.”

Lessons
Experience, they say, is the best teacher.
Did his stint at Spencer’s have anything new to teach him? His answer is
unequivocal. “It is absolutely necessary
to be upfront about things and be clear
in your communications. It is a key lesson that I learnt at Spencer’s.” Looking
back upon his days at Spencer’s, he
says, infuses in him a sense of deep satisfaction. “It was a great achievement,”
he says. With a growth rate of nearly
400 per cent during his stay, it sure was
some achievement.

insight

GROWTH & SUSTAINABILITY

The Business of
Sustainability: McKinsey
Global Survey results
More companies are managing sustainability to improve processes,
pursue growth, and add value to their organisations rather than
focussing on reputation alone

M

photos.com

any companies
are actively integrating sustainability
principles into their businesses,
according to a recent McKinsey survey,
and they are doing so by pursuing
goals that go far beyond earlier concern
for reputation management — for
example, saving energy, developing
green products, and retaining and
motivating employees, all of which
help companies capture value through
growth and return on capital. This
year’s results show that, since last
year, larger shares of executives say
sustainability programmes make
a positive contribution to their
companies’ short and long-term value.
This survey explored why and how
companies are addressing sustainability and to what extent executives believe
it affects their companies’ bottom line,
now and over the next five years.
On the whole, respondents report a
more well-rounded understanding of
sustainability and its expected benefits
than in prior surveys. As in the past,
December 2011

CFO india

45

insight
they see the potential for supporting
corporate reputation. But they also
expect operational and growth-oriented
benefits in the areas of cutting costs
and pursuing opportunities in new
markets and products. Furthermore,
respondents in certain industries —
energy, the extractive industries, and
transportation — report that their
companies are taking a more active
approach than those in other sectors,
probably as a result of those industries’
potential regulatory and naturalresource constraints.

A More Active Agenda
There are some noteworthy changes
since our 2010 survey, in the actions
executives report their companies
are taking on sustainability and their
reasons for doing so. For instance,
the share of respondents saying their
companies’ top reasons for addressing
sustainability include improving
operational efficiency and lowering
costs jumped 14 percentage points
since last year, to 33 per cent. This
concern for costs replaces corporate
reputation as the most frequently
chosen reason; at 32 per cent,
reputation is the second most cited
reason, followed by alignment with the
company’s business goals, mission,
or values (31%) and new growth
opportunities (27%), which climbed 10
percentage points since last year.
Therefore, it’s not surprising that
the areas where most executives say
their companies are taking action
are reducing energy usage and
reducing waste in operations, ahead
of reputation management (Exhibit
1). Fewer respondents report that
their companies are leveraging the
sustainability of existing products
to find new growth or committing
R&D resources to bring sustainable
products to market. Yet both of these
are important ways sustainability can
drive growth. These results suggest
that companies may be better able to
find a competitive advantage when
46

CFO india

December 2011

pursuing growth activities than
operational activities.
Companies are also integrating
sustainability across many processes,
according to respondents: 57 per cent
say their companies have integrated
sustainability into strategic planning
(Exhibit 2).
The most integrated area is mission
and values, followed by external
communications, while the least

integrated areas are supply chain
management and budgeting. That said,
about the same share of respondents
say they have formal programmes
to address it (Exhibit 3). The share of
respondents saying their companies
effectively manage sustainability has
even shrunk somewhat. Starting last
year, we used these three characteristics
to define a group of “sustainability
leaders”, companies that are more

insight
adept at capturing value through
sustainability along various measures
that the survey asked about.

Leading the Way
In general, respondents from
companies in the leaders’ group say
their companies do more on every
aspect of sustainability; this is especially
true in the areas of growth and risk
management that, along with return
on capital, are three ways in which
sustainability can create value based
on McKinsey research (Exhibit 4). For
example, 94 per cent say their companies
have integrated sustainability into
strategic planning, versus 53 per cent
of all other respondents. Compared
with the integration of sustainability
into other processes, however, the
leaders’ supply chains and budgets
are less integrated; respondents at
other companies report this pattern
as well. In addition, respondents in
the leaders’ group are more likely than
other respondents to report that their
companies are pursuing each of the 13
actions related to sustainability listed
in the survey, and they rate themselves
more effective at taking action, relative
to competitors, more often than the rest
of respondents do.
Executives in the leaders’ group are
also more likely to say their companies
are taking higher-level, more strategic
actions: much higher shares of leaders
are managing their business portfolios
to capture trends in sustainability
and committing R&D resources to
sustainable products.
Furthermore, just nine per cent of
respondents at these companies say
they have sustainability programmes
in place to respond to regulatory
requirements, compared with 25 per
cent of all other respondents. Those
in the leaders’ group are more likely to
say instead that sustainability is aligned
with their goals, mission, and values
(59% versus 28% of all others) and
that it strengthens their competitive
position (43% versus 24%).
December 2011

CFO india

47

insight
It’s likely related that executives in the
leaders’ group are more than twice as
likely as all others to say their companies capture value from sustainability
opportunities. Indeed, 30 per cent say
they are capturing all the value they
can, versus nine per cent of all others.
And while all respondents struggle
with the pressure of short-term earnings performance as a barrier to value
creation, the leaders struggle less with
leadership, systems, and processes
that enable organisations to drive value
through sustainability (Exhibit 5).
Executives whose companies fall
into the leaders’ group also report that
employees at all levels are far more
knowledgeable about their companies’
sustainability activities — and that sustainability is more important for attracting and retaining employees — than
respondents at other companies. This
finding suggests that the integration of
sustainability extends far beyond business practices at these companies.
It’s important to note that the mix of
industries represented in the leaders’

group differs from the full group of
respondents to the survey. A handful
of industries — arguably those with a
higher impact on environmental issues
such as resource use and emissions,
whose need to be more proactive on
sustainability to effectively manage
their future business is more urgent —
are over-represented: energy, extractive
industries, manufacturing, and transportation. Relatively few respondents
from finance, retail, and business,
legal, and professional services are in
the leaders group.

Value Creation and
Industry
The fact that some industries are overrepresented in the leaders’ group highlights differences in emphasis on and
effective management of sustainability
across industries. This carries over to
value creation. Overall, the relationship between sustainability and quantifiable value is still somewhat unclear,
executives indicate: about one-third of

respondents say they don’t know how
much sustainability initiatives add to
shareholder value at their companies.
In addition, the share that rate sustainability’s contribution to short-term
value as positive has only inched up
since last year’s survey, to 48 per cent.
However, respondents do cite several
different levers for value creation over
the next five years. Among the top are
managing corporate reputation, capturing sustainability trends in the business portfolio, and committing R&D
resources to sustainable products;
across industries, the relative importance of each effort varies (Exhibit 6).
Respondents at consumer and B2B
companies diverge on the levers that
could drive longer-term value creation.
Respondents in both groups expect
reputation to add a similar level of
significant value, or more than 11 per
cent of shareholder value — indeed,
it’s the most frequently selected
action by respondents at consumer
companies. Among B2B respondents,
however, the highest share (23%) say

57 per
cent of the
respondents
say their
companies
have
integrated
sustainability
into strategic
planning
48

CFO india

December 2011

insight
managing their business portfolios
to capture sustainability trends adds
significant value to companies in their
industries, compared with 15 per cent
of consumer respondents.
Achieving higher prices or greater
market share through sustainable products, committing R&D resources, and
responding to regulations has more
value potential for B2B companies,
executives say, while those at consumer
companies see more potential in managing sustainability through the value
chain, water use, and waste.
Across industries, executives also
differ in how they view barriers to
value creation. Those at extractive firms
point to a lack of capabilities (25%
versus 15% of all respondents) and
lack of incentives tied to sustainability
performance (42% versus 32%) as
being bigger barriers than they are
for respondents in other industries.
Higher shares of transportation
respondents than the average also cite
lack of incentives (45%), while fewer
executives at energy firms select most
of the barriers presented, perhaps
suggesting that they’ve been thinking
about sustainability and value longer
than others. Some in the energy sector
do still cite key performance indicators
(KPIs) and integrating sustainability
into their performance management
systems as concerns. Executives at retail
firms are more likely to report barriers
— except for organisational structure
and a disconnected sustainability
department — than the average.

Looking Ahead
Companies are not doing as much to
integrate sustainability into internal
communications or employee engagement as they are into other areas of
business, such as strategic planning.
With 53 per cent of respondents
saying company performance on
sustainability is at least somewhat
important to attracting and retaining
employees, companies that take action
are more likely to gain an advantage in

employee retention. The leaders are
better at engaging employees on this
issue (and at keeping employees at all
levels more informed), suggesting that
it’s possible to make the most of this
opportunity in sustainability.
Our experience in working with
companies in different industries on
sustainability aligns with the survey
findings that different industries use
different levers (growth, return on
capital, and risk management) to create
significant value. There’s no single
way to create value from sustainability,
so knowing where the biggest
opportunities for value creation are in
an industry — and where the risks and
barriers lie — can serve as a guide for
developing sustainability strategies.

Coupled with the shift in reasons for
pursuing sustainability, from reputation
management to operational improvements and new growth opportunities,
the overall high degree of integration
seems to indicate that companies have
become more businesslike about their
sustainability agenda. Most companies,
however, are still struggling to factor sustainability into the ‘hard’ areas of their
business, such as supply chain and the
budget, so there is still a lot of potential
to drive further integration and increased
value creation. Where leaders and all
others diverge most is around KPIs,
organisational structure, and leadership
engagement; these may be high-potential
areas for companies striving to become
sustainability leaders.
December 2011

CFO india

49

insight

Putting it into Practice
Companies should integrate environmental, social,
and governance issues into their business model —
and act on them Sheila Bonini and Stephan Görner

S

ustainability has long been on
the agenda at many companies,
but for decades their environmental, social, and governance activities have been disconnected from core
strategy. Most still take a fragmented,
reactive approach — launching ad hoc
initiatives to enhance their ‘green’ credentials, to comply with regulations, or
to deal with emergencies.
That’s no longer enough. Material
r i s k s n o t o n l y t o a c o m p a n y’ s
reputation but also to the bottom line
come from many, often unpredictable
directions. Where such challenges
arise, opportunities also lie: McKinsey
estimates that the clean-tech product
market, for example, will reach $1.6 tn
by 2020, up from $670 bn in 2010.
Our research finds that a handful of
companies are capturing significant value
by systematically pursuing the opportunities sustainability offers. We believe the
trend is clear: more businesses will have
to take a long-term strategic view of sustainability and build it into the key value
creation levers that drive returns on capital, growth, and risk management (Exhibit 1), as well as the key organisational elements that support the levers.

Approaching
Sustainability
Our survey produced insights
into the specific practices of a small
group of companies that treat sustainability holistically. At all of them, it is
a top-tier item on the CEO’s agenda,
a formal programme is in place to
address it, and executives embed it in
business practices.
Make no mistake, however: capturing sustainability’s full value potential
is complicated. In essence, a company
must first determine its baseline performance on sustainability issues and
then decide on a portfolio of initiatives
to create value in those areas.
Opportunities to create or preserve
the most value vary greatly among
industries (Exhibit 2). An extractiveservices company, for example, could
significantly reduce its costs through
better management of energy and
water. A retail company could reduce its
resource intensity and costs by revamping its supply chain, since the biggest
environmental impact within that sector can often be traced to raw materials.
An energy company may have more
opportunities than companies in other

Most companies...look
first to improving returns
on capital, which means
reducing operating costs
through improved natural
resource management

industries to create value through new
products — for example, by commercialising investments in smart grids.

Creating Value
Integrating sustainability into strategic initiatives is especially important
because these issues play out over the
long term. It’s easier for companies
where they are core concerns to understand trends and make strategic bets
in advance of consumer preferences,
stakeholder pressure, or regulation.
GE, for example, placed early bets on
climate change: in 2004, before Al Gore
and Hurricane Katrina made this a topof-mind issue, the company resolved
to double its research investments and
sales in clean technology. It also promised to ‘green’ its own operations. As a
result, GE’s Ecomagination division has
been a tremendous growth engine, with
product sales reaching $18 bn in 2009.

Returns on Capital
Most companies creating value through
sustainability look first to improving

insight
returns on capital, which often means
reducing operating costs through
improved natural-resource management (such as energy use and waste).
Dow Chemical, for example, reported
that it invested less than $2 bn since
1994 to improve its resource efficiency.
To date the company has saved more
than $9.8 bn from reduced energy consumption and water waste in its manufacturing processes. In 1996, through a
separate initiative, Dow also created a
set of goals for environmental, health,
and safety issues, and it has ensured
their integration into the company’s
processes by tracking progress with
clear metrics. As a result Dow, with a
20 per cent reduction in absolute greenhouse gas emissions, has gone well
beyond Kyoto Protocol targets.
Companies are also driving down costs
by systematically managing their value
chains. Wal-Mart, for example, expects
to generate $12 bn in global supply chain
savings by 2013 through a packaging
‘scorecard’ that could reduce packaging
across the company’s global supply chain
by five per cent from 2006 levels.

Growth
Companies that rigorously pursue sustainability also regularly revisit their
business portfolios to determine the
potential impact of trends (such as
existing or potential climate change
regulations) that could lead to new
growth opportunities. Companies also
screen rigorously for unmet needs created by sustainability trends in line with
their strategies and identify potential
customer segments. ArcelorMittal, for
example, embedded sustainability in its
organisational design through a department for scientific analyses of the life
cycles of steel products. The department creates offerings that minimise
steel’s negative environmental impacts
— one result of the company’s investment in innovative solutions. GlaxoSmithKline is looking to its business
model in addressing diseases in lessdeveloped markets. By adopting a range

of flexible pricing models for patented
medicines and vaccines so that they’re
affordable for customers in those countries — yet still profitable — the company hopes to garner a significant share
of sales in potential new markets.

Risk Management
Better management of risks that arise
from sustainability issues begins with
detecting key risks of operational disruptions from climate change, resource
scarcity, or community issues (such as
delays in getting permits for manufacturing). Faced with potential supply constraints, Nestlé, for example,
launched a plan in 2009 that coordinates activities to promote sustainable
cocoa: producing 12 million stronger
and more productive plants over the
next 10 years, teaching local farmers
efficient and sustainable methods,
purchasing beans from farms that use
sustainable practices, and working with
organisations to help tackle issues like

child labour and poor access to health
care and education. The mining giant
BHP Billiton managed its exposure to
emerging regulations by systematically
reducing its emissions.
The choice for companies today is not
if, but how, they should manage their
sustainability activities. Companies can
choose to see this agenda as a necessary
evil — a matter of compliance or a risk
to be managed while they get on with
the business of business — or they can
think of it as a novel way to open up
new business opportunities while creating value for society.
About the Authors
Sheila Bonini is a consultant
in McKinsey’s Silicon Valley
office; Stephan Görner is a
director in the Sydney office.
This article was originally published in McKinsey Quarterly.
Copyright (c) 2011 McKinsey &
Company. All rights reserved.
December 2011

CFO india

51

leader’s

world

I

Doing the
Deal: Be

nnovative

ABOUT THE AUTHOR
David Lim, Founder,
Everest Motivation Team, is
a leadership and negotiation
coach, best-selling author
and two-time Mt Everest
expedition leader. He can be
reached at his blog http://
theasiannegotiator.
wordpress.com, or
david@everestmotivation.com

52

CFO india

December 2011

Negotiating is one of the most underrated
skills that a CFO must have. For each kind
of challenge, one would probably have to
modify their tactics David Lim

In the past year, I’ve written extensively on one of the most underrated
leadership skills for CFOs — namely negotiating skills. Our company Everest
Motivation Team, conducted a global survey on negotiation skills with over 1000
respondents, of which about a quarter had a C-suite designation. We asked them to
rank (out of five) the most common mistakes in negotiating, and the winner (with
40% of the votes) was “not having enough tactics” and the second (at 22%) was
“inability to respond to tactics”. That being said, it’s worth moving away from the
classic across-the-table type of negotiation scenario to deal with negotiation from at
least two more angles.
When we deliver workshops and coach people in this arena, we emphasise
the PINE acronym for structuring a negotiation, starting with the ‘P’ – standing
for ‘prepare’. The other elements of the acronym are ‘I’= gather Information,
‘N’ = negotiate and ‘E’ = execute the necessary actions post-negotiations. In our
experience, a huge let down for most would-be negotiators is the wanton illregard they often have towards the “P”, or preparation. The first of the multi-angle
approach is as follows:

leader’s world
Negotiation Set-up
My friend Jim had a friend who had
smashed her car up in a traffic accident,
and was to meet the insurance assessor.
Fearing that she would be taken advantage
of, she asked him to sit with her at the
meeting. When the assessor arrived, she
introduced Jim as a ‘negotiation expert’.
By setting up the negotiation this way,
she guaranteed greater transparency of
information from the assessor, and also
thwarted any possible attempts to give her
less than her due.
A well-known compensation lawyer was
negotiating on the behalf of an incoming
CEO of a large corporation. Early in the
negotiations, he took his client aside and
assured his client that he would get everything he wanted. He was right. The prospective employer sent their in-house counsel, an
experienced lawyer and negotiator. But they
failed to get the all-important negotiation setup right. The in-house lawyer knew that this
guy would be his new boss. There was no
way he was going to adopt a tough stance on
the new boss’ compensation package.
The lesson here is that you will need to
think about the set-up way before you even consider what
tactics you will deploy to get what you want.

The Table
I won’t cover this in detail, but all the negotiations that happen face to face, for example, and involve all the usual tactics
and strategies. However, some common mistakes include
jumping to conclusions, where you may assume you know
that the other party wants to get out of a negotiation. This
can often lead to people taking entrenched positions. For
example, you make a hasty assumption that a large salary
increment from his last job is what a prospective hire wants.
However, upon probing, you discover he has made some
commitments which need to be covered by a small lump sum
payment, and he was hoping to make that from a few months’
of higher salary. A possible better option for the company
would have been to offer him an interest-free loan for the
same amount, payable within a few years, to tide him over his
cash flow problem. Understanding interest versus positions
is a key part of this aspect of negotiations.

“You will need to think about
the set-up way before you even
consider what tactics you will
deploy to get what you want”
with the current structural arrangement”…“ We would never
get a permit from the farmers association to build there...”
In each example, you need to consider what aspects of the
position or statement could be modified so that a negotiated agreement can be reached. “It’s too expensive” is a deal
breaker type of statement, but could a deal be struck if we
took another approach where we spaced out payments for the
service or item? Similarly budget constraints could be tackled
from the perspective of seeking to spread payments over two
financial years. Could the ‘structural arrangement’ be modified to get an outcome the other party clearly wants? What are
the farmers’ interests? Is it to leave the fields fallow, or are
they open to construction but worried about the environmental impact on their community?
In summary, negotiating on the basis of tactics and such
approaches only address one aspect of a possibly complex
issue. Taking a multi-angle approach on the set-up, deal makers in addition to table-top negotiations is the way to go to get
the maximum mutual outcomes of a negotiation.
David Lim is a leadership and negotiation coach,
best-selling author, and two-time Mt Everest
expedition leader. Check out a free e-book
segment of his latest book How Leaders Lead at
http://www.howleaderslead.com Contact: david@
everestmotivation.com
December 2011

CFO india

53

Lounge

12.11

CFO

This Christmas we test drive the new BMW
530d and then travel to Santiniketan for the
iconic Poush Mela. Do check out our new
page: that tells you about India’s newest and
coolest meeting & eating (M&E) places. This
month: The new Grand Hyatt at Bambolim,
Goa. Happy holidays!

BMW 530D

In Fifth Heaven

The new BMW 5-series loses some of its previous
generation quirks to emerge as a more polished
product. Amit Chhangani checks it out
The new BMW 5-series, or the F10, as it
is codenamed, is a sharp aberration from its
predecessor in terms of design. In its newest
avatar, the 5-series has turned to its tradition
as far as the aesthetics go. With the inclusion
of a fully electric power steering the car has
embraced technology more than ever, but has
been criticised by some purists who think that
the new inclusion had bereaved the legendary
label of its most likeable aspect, a connected
driving feel. But is that really the case?

We found out with a comprehensive road test
review which spanned more than 600 km.

The Looks
The new 5-series may not have the ‘devilmay-care’ attitude of its predecessor which
looked sinister with its twin front moustache

DID YOU

KNOW?

The 5-Series got
its name by being
the fifth of the
‘new series’ cars
after the V-8 and
Isetta. The first
5-series body was
styled by Marcello
Gandini, based
on the 1970 BMW
Garmisch 2002ti.

cfo lOunge

on Wheels
lights and twin rings surrounding the
main illumination units, but it looks
mean and sharp enough from plenty
of angles. It looks longer, lower and
leaner than the earlier version, and
when you look at it in profile, that
snout does seem to have a really mean
and evil air about it. Some may call
the new 5-series conservative, but start
appreciating the details, and you’ll fall
deeply in love with its form.
The 530d is powered by a 3.0-litre
straight six diesel, which incidentally
is the same unit as found on the lower
spec 525d. On the 530d, however, the
engine is tuned to deliver reasonably
more power and torque. And the effect
that those three liters of cubic capacity
nicely packaged by one of the best
engine makers in the world today has
on you once you are behind the wheel
is simply mind boggling. 0-100 km/h
comes in a very quick 6.3 seconds
and 200 km/h shows up before you
could even start appreciating the
acceleration fully.
All that firepower from the engine is
mated with an eight speed automatic
sports transmission with Steptronic.
The 530d comes with BMW Efficient
Dynamics which uses clever tech such
as brake energy regeneration for better
efficiency and less emissions.

The Feel
From the moment you get into the
new 530d’s cabin, you feel at home, if
you have driven a BMW earlier that
is. Controls fall within easy reach
of hands, and the visibility through
the windscreens and windows is
good. Push the ‘start’ button, and
with the very first inch the car moves
you realise that there is something
different about the steering wheel. Not
just is the wheel all new in terms of
design, but it is first ever fully Electric
Power Assisted unit here. It feels
lighter and you don’t need to wrangle
with the wheel anymore while trying
to maneuver your way out of small
streets which abound in India.

Amazing firepower and smooth
to drive, the new bmw 530D also
boasts of great safety features

BMW 530d
Price:
BMW 530d

48.5 lakh

(Ex-showroom)
Engine:

2993cc
turbo diesel

Power

245Bhp@

4000 rpm

Torque 540Nm@

1750-3000 rpm

Positives
3.0 litre engine is a true
performer. Quality of the
interior is great and it
has more space than the
previous 5-series. Loaded
to the brim with features
Negatives
Styling not as bold as its
predecessor. Run flat tech
is good, but a spare tyre
doesn’t hurt
VERDICT
Loaded with features
and technology, the 530d
is the most expensive
5-series you can buy in
the country. But if you
have the money, this is
the car to buy

I drove through rough and smooth roads, including
the stretch on the Mumbai Pune highway, and the winding roads leading up to Panchgani and Mahabaleshwar.
Not once did I find the new set-up lacking in terms on
feedback or control.

The Features
The 530d is the top of the line BMW 5-series available in
India. It’s loaded to the gills with features, and no other
5-series model in India boasts of as much technology
and as many toys as the 530d. One feature, however,
which needs a special mention, is the Head Up Display.
The fighter aircraft style display on the windscreen
lets the driver keep track of certain critical information
without having to take his eyes of the road. The system
can also be turned on and off using a button.
Overall it was sheer pleasure driving the new 530d
across some of the better Indian roads. If you have the
money to buy this baby, go for it.
december 2011

CFO india

55

cfo lounge

Gizmos
new launches

Kindle Fire

Amazon’s “iPad
killer” tablet has
hit the shelves.
It sports
Android 2.3 OS
and runs a dualcore 1000 MHz
processor with
8 GB storage and 512 MB RAM.
The dimension of the tablet is 7
inches. Approx price is `15,000.

Hot Spot

Lenovo IdeaPad K1 tablet
Impressive performance, rough persona

ASUS
Zenbook UX31

Vishal Mathur
Everyone is jumping on to the
tablet bandwagon — and Lenovo is
no exception. The K1 appears to be
competing with Motorola Xoom.
It has a unique physical button for
Home, something we haven’t seen
on Android 3.0 and beyond devices.
This doubles up as a touch sensitive
button, and will work as a back button
when you use that gesture. The K1
back has a pattern on the plastic to aid
grip, but the plastic quality used feels
cheap. The camera is placed badly,
and is easily smudged when holding it in landscape mode — similar
to the Acer Iconia Tab A501. All ports
and slots are on the side panels, and
the quality of buttons feel inferior. Not
something you expect when you spend
well over `30k for a tablet.
We received the 32 GB version, and
what we love most is the memory slot
to further expand storage space.
The tablet performed magnificently,
delivering a smooth Android
experience, with no slowdowns under
app load. After a system update
though, the tablet slowed to a crawl,
but a couple of restarts later it was

back to its blazing self. The display is
quite crisp and bright, and can get too
bright if you don’t activate the auto
brightness setting. Viewing angles are
decent, but not really as good as on
the Galaxy Tab 750. The tablet heats
up quite a bit after a mere 15 minutes
of web browsing on Wi-Fi — terrible.
The battery life isn’t the best, but
we can’t complain too much. We were
concerned that the battery seems to fall
pretty quickly even on standby, meaning you will find yourself charging it
everyday unless you shut it down every
night, or at least turn off Wi-Fi.
For a box price of `31,990 it’s not the
ultimate package. The Xoom is cheaper, and for just `1.5k more, you can get
the excellent Galaxy Tab 750.
Specifications: ARM Cortex A9 dual
core 1GHz processor; 1GB RAM; 32
GB storage; 10.1-inch display; 5 MP
camera (2 MP for video calls); Android
3.1; Wi-Fi + 3G
Price: `31,990
Features
6.0
Performance
7.5
Value
5.5

ASUS announced its latest
line of ultrabooks. Featuring
second gen i7 processors, 4
GB of RAM, a 256 GB SSD and
a chiclet-style keyboard. This
premium device will retail at
approximately `89,900 in the
Indian market.

Samsung
Galaxy Note
Sporting a super
AMOLED display,
the Galaxy Note
is a brick-sized
phone. It’s packed
with features such
as 8 MP rear and
2 MP front camera
and 16 GB of in-built memory.
Priced at approx `35,000.

powered by

56

CFO india

December 2011

ad
Re Y
st OG
Mo L E
’s NO ZIN
dia CH GA
In TE MA

cfo lounge

travel

SANTINIKETAN, West bengal

IN TAGORE’S
LAND
A few days at Santiniketan
during the famous Poush Mela
is enough to mesmerise you,
says Anil Mulchandani
Since my wife is a great admirer of Tagore’s work, we
decided to spend a long-weekend at the poet’s hometown of
Santiniketan, during the famous Poush Mela which always
coincides with Christmas vacations.
It was morning when we started out for Santiniketan
from Kolkata. Less than four hours later, after checking
in at our hotel and enjoying a traditional Bengali lunch,
we walked to the fair ground, a
few kilometres away. The historic
Poush Mela was started by Maharshi
Devendranath Tagore more than 150
years ago.
The fair ground was brightly
decorated and had many of the
usual carnival stalls selling musical
instruments and a variety of items;
food stalls offering Bengal’s favourite
street-food like Kathi Rolls, Mughlai
Parathas and Puchkas and sweet
vendors. The fair begins with shehnai
music, usually on December 23,
and the Vaitalik group goes around
singing songs. The university organises a Upasana Sabha at
Chatimtala where Maharshi meditated. On December 24,
the university organises a display of lights and fireworks, a
custom started by Rabindranath Tagore. On Christmas Day,
the university organises the Christo Utsab, which is meant
as a mark of respect for all religions.
At the fair ground, we met a troupe of the Bauls, the mystic
minstrels from Bengal. The Baul musical tradition expresses
58

CFO india

December 2011

the Baul thought, which is a faith based on simplicity in life
and love, with elements of Tantra, Sufi Islam, Vaishnavism and
Buddhism. Baul music also influenced Rabindra Sangeet.
On the first evening that we were at the mela grounds
Shibsundar Das Baul and members of the Bhirbhum
Rangamati Baul troupe were singing while strumming their
ektara and dotara (single and dual stringed wooden instruments). Others played the flute.

cfo lounge

travel
Below: there are multiple staying options at
santiniketan. one can opt for a home stay,
book a room at the luxury marks & meadow
cottages, or stay at the tourist lodge

Above: udayan complex,
where rabindranath spent
most of his time
Left: handicrafts on
display at amar kutir
Extreme left: the posh
mela in full bloom

Next morning, we
set out to visit the Visva
Bharati University and
the Patha Bhavan school.
Rabindranath Tagore
started Patha Bhavan with
five pupils, and the classrooms were under a tree, as he believed learning in a natural
environment would be more enjoyable and educational. After he
received the Nobel Prize, the experimental school was expanded
into the Visva Bharati University in 1921. By 1951, it had become
one of India’s most prestigious universities. Iconic figures such
as CF Andrews and Alex Aronson have taught here and its
alumni includes such names as Maharani Gayatri Devi, Indira
Gandhi, Satyajit Ray, Abdul Ghani Khan and Amartya Sen.

We walked around the Uttarayan complex where Tagore
lived and saw each of his ‘homes’ — Udayan, Konark,
Shyamali, Punascha and Udichi. The Bichitra or Rabindra
Bhavan is a research centre and museum, where the poet’s
personal belongings, paintings and various editions of his
works are exhibited.
We walked through the campus to a building with the famous artist Nandlal Bose’s paintings of some of Tagore’s dance
dramas. The campus has many abstract structures, and classrooms which, in keeping with Tagore’s vision, are still alfresco.
After lunch, we drove to Amar Kutir, which has a large
shop where local artisans can display and sell their wares.
Sriniketan took over the work of Santiniketan in promoting
handicrafts with the objective bringing back life in its
completeness to the villages, and help people to solve
their own problems instead of solutions being imposed
on them from outside. We watched artisans at work on
kantha, batik, leatherwork and pottery. After shopping,
we drove to Ballavpur which has been developed into a
natural sanctuary for deer. Walking around, we saw a herd
of spotted deer. Further ahead, we saw a large male spotted
deer with velvety antlers. The trees trilled with bird calls. It
was a fitting finale to a lovely holiday in the land of one of
India’s greatest sons.

GETTING THERE: You can get here by train or road from Kolkata
PLACES TO STAY: Mark & Meadows, Hotel Camellia, Chutti
Holiday Resort, Hotel Royal Bengal are some of the hotels.
There are many attractive homestays
December 2011

CFO india

59

cfo lOunge

M&E

BEST NEW MEETING PLACE

Go Goa

The Grand Hyatt at Bambolim is
perfect for an offsite or a conference.
Planning an offsite or a conference where
colleagues or delegates can take their families
along? Look no further than the brand new Grand
Hyatt in Bambolim, Goa. This resort and spa on
the beach, 25 km from the airport, is spread across
28 acres of tropical gardens and lawns. It has 314
guestrooms and suites, seven restaurants and bars
and an outdoor pool complex. The Shamana Spa
has 19 suites offering Thai, Balinese and Indian
treatments. All rooms have large balconies. The
conference rooms are located across two floors
and include the Grand Ballroom(12,400 sq ft).
Six function rooms are on the ground level and
the lobby level houses two meeting and two
board rooms. The restaurants offer cuisines and
beverages from across the world. If the group
includes children, there is Camp Hyatt where
kids can have their own vacation under expert
supervision.

Greek Symphony
OPA - a Greek word used to
describe a jubilant emotion during celebrations is exactly what
this new 4000 sq feet restaurant
in Mumbai’s Juhu area is all
about. OPA’s a-la-carte fare is a
combination of food from across

the salads and
the sea food are
amazing at opa.
vegetarians also have
a plethora of options
to choose from at this
cool new restaurant

the Mediterranean region. Try
the Martinis here, the Grape
Mélange, the Tamarin Margarita
or one from their rich collection
of single malts. Our recommendation from the extensive food
menu would include must-have’s
such as the the Lobster Risotto,
the Shepherd’s Pie and the Baba
Ganoush with grilled pita &
lavash. Opa is open for lunch and
dinner and a great place to meet
a business associate over a quiet,
enjoyable meal.